Planning Regimes and Supply

Which types of planning system are likely to be better at generating an adequate overall supply of housing? Considering first Dimension A, we would expect zoning type systems to generate more supply, particularly in more affluent, ‘comfortable’ places, whereas discretionary systems would create uncertainty for developers and investors and could give a lot of levers for ‘NIMBYs’ to pull. However, in economically weaker areas zoning would not guarantee that anything got built, whilst discretion might be used to encourage development, perhaps at the expense of ‘good planning’ in terms of sustainability criteria (as in extreme examples of overdevelopment in unsuitable locations in Ireland and Spain).

On Dimension B, we would argue that greater public ownership and control of development land would be more conducive to higher housing supply, so long as the public authorities want to promote housing. Where land is in private ownership, whilst in theory there is a profit motive to bring land forward for development, in practice many longterm landowners do not have a particular incentive to bring it forward now, rather than at some future date. In addition, multiple ownerships create problems of land assembly and reconciling conflicting aims, whilst single ownerships create problems of monopoly. China and Hong Kong present strong examples of publicly led land development, as did Britain historically (in the period 1950-75, when much more housing was built and when local authorities and development corporations often took the lead). There are also good examples in Europe amongst countries not considered in detail in this volume (Germany, the Netherlands).

On Dimension C, we would argue that in general more local- ist systems are more conducive to high supply where either the fiscal incentives are very strong (as in mainland China, or Germany and Switzerland) or in some cases where local economies are weak (Ireland, again). Otherwise, where local fiscal incentives are weaker and where local voters are more comfortable, localist planning will not be conducive to high supply.

Thus, Hong Kong has the capacity to deliver high supply because it has public control, a structured planning/zoning system and a broadly centralist system. Mainland China delivers high supply because it has allowed a degree of localism accompanied by strong fiscal incentives. At the other end of the spectrum, we have England, where a discretionary planning system is combined with mainly private land ownership and localism—a recipe for the lowest level of new housing supply in Europe, despite the fastest growing population. Australia certainly has been characterised as underperforming on supply relative to its demographic and economic growth—yet, in fact, its predominantly zoning system and central oversight to overcome local impediments enable supply to respond to market trends (although these trends themselves may deliver volatile output). However, whilst planning and zoning in Australia governs the supply of housing land (and indeed permissions for housing development), housing provision is heavily dependent on the end user—individual home owners rather than speculative developers or a public/non-profit entity. Thus, new housing development depends on affordability (for intending owner-occupiers) or potential profitability (for property investors), resulting in the growing mismatch between demographic and social need for new homes serving the full income spectrum.

You can have too much of a good thing, and that applies to housebuilding in some cases—notably large areas of Spain and Ireland before 2008. On paper, their planning regimes looked similar to Australia— zoning, private ownership and localism—but the context included more localities hungry for economic development, much weaker governance and probity within the planning system. This speculative housebuilding industry was combined with very lax financial regulation in the run-up to the GFC.

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