Planning and the Costs of Housing Production

As noted earlier, one of the most direct ways in which planning may influence the housing market, is by altering the costs of housing production. Direct costs include charges and fees associated with securing planning permission, including application fees and contributions towards local services or infrastructure. Indirect costs include the time and resources deployed in the application process. These include ‘holding’ costs—the interest charges on finance incurred whilst waiting for project approval and professional resources, for instance, the cost of preparing studies or commissioning consultant reports. If permission for a project is refused, developers may choose to finance a court appeal. Some developers are prepared to spend money to create a favourable relationship with decision makers, perhaps through a political donation. These costs are sometimes described as ‘premium- (or rent-) seeking expenditure’ and are more prevalent in jurisdictions where approval stakes are high and/or outcomes are less certain (Evans 2004, p. 108). One example of such a case would be the UK, with its discretionary development control process and restrictive planning stance of ‘containment’. Other cases could include countries where standards of probity in public administration are lower such that developers may allocate expenditure for corrupt payments or benefits in kind.

Indirect costs of planning regulation may arise when requirements are imposed upon developers regarding the size, type, design, form, construction method or materials used in new housing, which they cannot fully recoup from customers. Controversial recent examples in the UK have related to design codes and guides in some areas, dwelling size mix (especially in pressured markets), requirements for ‘accessible lifetime homes’ reflecting ageing/disability trends and much higher minimum energy efficiency standards.

Table 4.1 summarises the range of direct and indirect costs arising from different phases of the planning and housing development process.

Since the cost of housing production is only one factor determining house prices, the extent to which these costs will be passed forward to house buyers depends on market conditions at the time of sale. However, if known in advance, regulatory requirements can be factored into land acquisition decisions, and effectively passed back to land sellers.

Furthermore, although framed in terms of costs, each of the regulatory phases or requirements outlined earlier is intended to meet specific objectives such as environmental protection, the efficient provision of infrastructure and services, or neighbourhood amenity. If effectively implemented, these benefits are likely to be capitalised in final sales prices,

Regulatory phase





Potential indirect costs

Potential direct costs

Strategic Planning— plan making/ amendment Land use categorisation/ zoning

Where new housing can be located, when new housing can be developed

Efficient provision of infrastructure and services. Environmental protection.

Avoiding social isolation/exclusion Information about future development prospects.

Support dynamic economic growth/ labour supply

Zoning/categorisation establishes land development potential so influences value Amount of land available may influence land prices Time taken for decision-making

May be charge if developer has to initiate rezoning Studies to defend planning proposal/ application

Development controls—density and design requirements

The amount and configuration of new housing, elements of building design

Efficient provision of infrastructure and services.

Environmental protection and sustainability.

Amenity and heritage.

Information/certainty about future change

More expensive materials and finishing

Minimum size and parking requirements

Increased production costs—but

potentially recouped in sales as contribute to amenity

Regulatory phase





Potential indirect costs

Potential direct costs

Development assessment and approval Assessment and approval/refusal of proposal to carry out change in the use of land (i.e. 'development')

Planning approval for housing development

Managing change in urban land use. Protecting community amenity and avoiding negative externalities Opportunity for community input to decisions that might affect them

Time taken to secure approval.

Costs of preparing application.

Time/cost of negotiating details

Application fee.

May be fee for other required licences

Services and infrastructure coordination and provision

Contribution towards infrastructure or services (Condition of consent of planning approval)

Facilitating urban development by coordinating and providing basic services.

Ensuring quality-shared services that would otherwise be underprovided by market (e.g. open space). Increased value to homeowner/ resident

May discourage/displace development if contribution charges are too high/uncertain May distort type of housing produced (e.g. to capture higher value market)

Time/cost of negotiating where discretionary

Costs of contribution requirement.

May be combination of fees, including contribution set by planning authority and utility/transport charges set by other agencies

potentially recouped in sales as contribute to amenity

Regulation of construction process and completion to standards

Construction and completion

Health, safety, environmental protection standards

May reduce industry dynamism/innovation

May be costs to certify completion

Source: Adapted from Gurran et al. (2009, p. 42) and/or reflected in long-term lower taxes/charges or living costs as well as higher ‘quality of life’ for residents. Therefore, planning obligations may yield localised or wider ‘demand side’ effects, as well as also generating price effects arising from negative ‘supply side’ constraints over time. In short, planning may both raise and lower house prices, through different mechanisms. A fundamental difficulty with analysing the impacts of planning is, therefore, to untangle these two kinds of effects (Monk et al. 1991) The following sections outline empirical attempts to measure these potential effects.

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