Tuesday, 12 May 2015

A solution to our housing problems: free up the market for truly affordable housing

The new District Council will have to look at housing provision - especially 'affordable housing' - particularly in the light of various promises made by the parties before election day:
Futures Forum: Affordable housing: the political parties' policies >>>>>> the Conservatives
Futures Forum: Affordable housing: the political parties' policies >>>>>> the Greens
Futures Forum: Affordable housing: the political parties' policies >>>>>> the Liberal Democrats
Futures Forum: Affordable housing: the political parties' policies >>>>>> UKIP
Futures Forum: Affordable housing: the political parties' policies >>>>>> Labour
Futures Forum: Affordable housing: the political parties' policies >>>>>> the East Devon Alliance

In Sidmouth, the commitments made in the draft Local Plan are clear:
Futures Forum: Plans for Manstone: the draft Local Plan and 20 new homes >>> but no buyers and no affordable housing
Futures Forum: Plans for Port Royal: the draft Local Plan and 30 new homes
Futures Forum: Knowle relocation project: Pegasus as preferred bidder... However, its proposals for ‘one of the finest coastal properties’ in South Devon have been rejected by Dawlish Town Council 'on the grounds of overdevelopment'.

It is not clear how much any prospective developers would have to contribute towards 'affordable housing' in Sidmouth:
Futures Forum: 106 payments and the NPPF.............. the repercussions for East Devon

Ultimately, however, it is a matter of 'satisfying need' for housing:
Futures Forum: Identifying housing 'need'
Futures Forum: “Policy makers should not use a perceived shortage in the supply of housing as a smoke screen.”
Futures Forum: Housing: "it would be impossible to build to meet demand because there is a never-ending queue of people who want to move to Devon."

Notions of the free market state that much government 'interference' has simply blocked the building of 'affordable housing':
Futures Forum: Adam Smith and rationing housing supply

Here are two pieces of comment from earlier in the year:

February 5, 2015 6:30 pm

The solution to England’s housing crisis lies in the green belt

Building an economy upon a massive and growing distortion in the market for land is foolish
MIDDLEWICH, ENGLAND - MAY 20: Construction workers build new houses on a housing development on May 20, 2014 in Middlewich, England. Official figures have shown that house prices have risen by 8% in the year ending in March. There have been calls by some experts for the UK Help to Buy scheme to be scaled down as it boosts the property market. (Photo by Christopher Furlong/Getty Images)©Getty
ow would one describe a market in which the value of the same commodity varied by more than 100 to one? “Hugely distorted” is the answer. Yet that is precisely the situation for land near England’s most prosperous urban centres. As I have recently argued, these anomalies are the product of the UK’s system of land planning, introduced by the postwar Labour government in 1947. Their effect is to make a mockery of the claim that the country has a competitive market economy. If it did, these discrepancies simply could not exist.
In an excellent book on housing, Housing: Where’s the Plan?, Kate Barker, a former member of the Bank of England’s Monetary Policy Committee, notes that in 2010, agricultural land around Cambridge was worth £18,500 a hectare, while neighbouring residential land cost maybe £2.9m a hectare. Land restricted to agricultural use and land open to development lie side by side but their value is hugely different.



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In a recent paper, Christian Hilber of the London School of Economics and Wouter Vermeulen of the Netherlands bureau for economic policy analysis, note that real house prices have grown faster in the UK over the past 40 years than in any other member of the Organisation for Economic Co-operation and Development. Prices, particularly in London and the South East, are among the highest in the world. In the absence of controls, real prices would have risen by around 90 per cent between 1974 and 2008, instead of 190 per cent.
As usual, market distortions have large knock-on effects. Thus, a big proportion of the population have become land speculators; people who receive no help from their families are forced to live in cramped quarters or commute very long distances; the government feels forced to pay large subsidies for renting and now even house purchases; and the health of banking has come to depend on the continuation of the land scarcity. Paul Cheshire of the LSE even argues that these policies have made houses more similar to art or gold than to humble dwellings.
How can this be justified? The response is that this is how one preserves England’s green and pleasant land from the blight of urbanisation. Let us leave aside the fact that the majority of people want to live in cities. The big question is whether the amenity value justifies forgoing the value revealed in the extraordinary prices of residential land.
To this, Prof Cheshire offers a powerful response. The core question, he notes, is what is to be done with the green belts around our cities. Supporters of the policy of “urban containment” argue that this is a small island whose countryside risks being concreted over.
In fact, the land in green belts alone is one and a half times greater than in all cities and towns together. Moreover, the towns are far “greener” than green belts. Gardens cover nearly half of the 10 per cent of England that is urbanised, while the dominant use of land in green belts is intensive arable farming, which is mostly hideous and offers less biodiversity than urban parks and gardens. Nor do green belts offer much if any amenity to the bulk of the population that lives in the great cities. Their value goes to the small number of people who own houses inside them.
So what is to be done? The price mechanism should rule. There should be a presumption of development in green belts, unless the cost of new infrastructure exceeds the benefits. Developers should pay a fee to local councils at least equal to the additional infrastructure costs, and ideally more than that, in order to encourage development. Some combination of fees and subsequent taxes on beneficiaries should also meet all additional cost of public services. A tax on undeveloped sites would help ensure that land was developed. Finally, those prepared to argue that a valuable amenity risked being lost should be entitled to challenge the presumption of development. But they would also need to produce evidence of value of the lost amenities.
I understand the vested interests of those with houses in or near the green belts. I understand, too, the risks of a policy that might actually lower house prices. But building an economy upon a massive and growing distortion in the market for land is foolish. We do not need to concrete over England. We do need to stop constraining the growth of the places where people really want to live. It is untrue that the green belts are areas of outstanding amenity. They are rather sources of increasing misery, as an ever-larger population is crammed into an artificially limited space.
This is a really big issue. That is, of course, why no politician dares touch it.
Letters in response to this column:

Shut Out: How Land-Use Regulations Hurt the Poor

Economics paints a damning picture of zoning and smart growth


Filed Under : PovertySupply and DemandRegulation

People sometimes support regulations, often with the best of intentions, but these wind up creating outcomes they don’t like. Land-use regulations are a prime example.
My colleague Emily Washington and I are reviewing the literature on how land-use regulations disproportionately raise the cost of real estate for the poor. I’d like to share a few of our findings with you.
One kind of regulation that was actually intended to harm the poor, and especially poor minorities, was zoning. The ostensible reason for zoning was to address unhealthy conditions in cities by functionally separating land uses, which is called “exclusionary zoning.” But prior to passage of the Civil Rights Act of 1968, some municipalities had race-based exclusionary land-use regulations. Early in the 20th century, several California cities masked their racist intent by specifically excluding laundry businesses, predominantly Chinese owned, from certain areas of the cities.
Today, of course, explicitly race-based, exclusionary zoning policies are illegal. But some zoning regulations nevertheless price certain demographics out of particular neighborhoods by forbidding multifamily dwellings, which are more affordable to low- or middle-income individuals. When the government artificially separates land uses and forbids building certain kinds of residences in entire districts, it restricts the supply of housing and increases the cost of the land, and the price of housing reflects those restrictions.
Moreover, when cities implement zoning rules that make it difficult to secure permits to build new housing, land that is already developed becomes more valuable because you no longer need a permit. The demand for such developed land is therefore artificially higher, and that again raises its price.
Minimum lot sizes
Other things equal, the larger the lot, the more you’ll pay for it. Regulations that specify minimum lot sizes — that say you can’t build on land smaller than that minimum — increase prices. Regulations that forbid building more units on a given-size lot have the same effect: they restrict supply and make housing more expensive.
People who already live there may only want to preserve their lifestyle. But whether they intend to or not (and many certainly do so intend) the effect of these regulations is to exclude lower-income families. Where do they go? Where they aren’t excluded — usually poorer neighborhoods. But that increases the demand for housing in poorer neighborhoods, where prices will tend to be higher than they would have been.
And it’s not just middle-class families that do this. Very wealthy residents of exclusive neighborhoods and districts also have an incentive to support limits on construction in order to maintain their preferred lifestyle and to keep out the upper-middle-class hoi polloi. Again, the latter then go elsewhere, very often to lower-income neighborhoods — Williamsburg in Brooklyn is a recent example — where they buy more-affordable housing and drive up prices. Those who complain about well-off people moving into poor neighborhoods — a phenomenon known as “gentrification” — may very well have minimum-lot-size and maximum-density regulations to thank.
When government has the authority to restrict building and development, established residents of all income levels will use that power to protect their wealth.
Parking requirements
Another land-use regulation that makes space more expensive is municipal requirements that establish a minimum number of parking spaces per housing unit.
According Donald Shoup’s analysis, parking requirements add significantly to the cost of housing, particularly in areas with high land values. For example, in Los Angeles, parking requirements can add $104,000 to the cost of each apartment. Parking requirements limit consumers’ choices and increase the cost of housing even for those who prefer not to pay for parking.
Developers typically build only the minimum amount of parking required by law, which indicates that those requirements are binding. That is, in a less-regulated environment, developers would devote less land to parking and more land to living space. A greater supply of living space will, other things equal, lower the cost of housing.
Smart-growth regulations
In the 1970s, municipalities enacted new rules that were designed to protect farmland and to preserve green space surrounding rapidly growing cities by forbidding private development in those areas. By the late 1990s, this practice evolved into a land-use strategy called “smart growth.” (Here’s a video I did about smart growth.)  While some of these initiatives may have preserved green space that can be seen, what is harder to see is the resulting supply restriction and higher cost of housing.
Again, the lower the supply of housing, other things equal, the higher real-estate prices will be. Those who now can’t afford to buy will often rent smaller apartments in less-desirable areas, which typically have less influence on the political process. Locally elected officials tend to be more responsive to the interests of current residents who own property, vote, and pay taxes, and less responsive to renters, who are more likely to be transients and nonvoters. That, in turn, makes it easier to implement policies that use regulation to discriminate against people living on low incomes.
Zoning, minimum lot sizes, minimum parking requirements, and smart-growth regulations demonstrably and significantly increase the cost of housing for everyone by raising construction costs and restricting the supply of housing.
The average household in the United States today, rich or poor, spends about a third of its income on housing. But higher home prices hit lower-income households disproportionately hard because a dollar increase in housing expenditure represents a larger percentage of a poorer household’s budget. Indeed, the bottom 20 percent of households spends around 40 percent of income on housing.
In other words, these land-use regulations are unfairly regressive. Relaxing or even removing them would be a step toward achieving greater equity.

Shut Out: How Land-Use Regulations Hurt the Poor : The Freeman : Foundation for Economic Education

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