The Green Noose: the devastating effects of Britain’s green belts and what to do about it

Image: Photoeverywhere
Image: Photoeverywhere

Over the last two decades, property prices in the UK have gone through the roof, rising faster than in any other G7 country. Between 1998 and 2013, the average house price in Britain increased threefold and London homes saw their value quadruple. By some measures British property is the most expensive in the world – save for Monaco. The effects of this phenomenon are numerous, far-reaching and harmful to both the economy and people of Britain.

Economically speaking, inflated house prices reduce efficiency as workers who are priced out of the capital take jobs in less productive areas or waste hours on marathon commutes. Allowing resources to move where they can be used most productively is essential for any successful economy. A recent paper by Chang-Tai Hsieh of the University of Chicago and Enrico Moretti of the Univeristy of California, Berkely argues that restrictive land regulation in the USA may have constrained American GDP by more than 10%. However, housing restrictions are much tighter in the UK than the US, especially in fast-growing cities such as Manchester, Cambridge and London. Furthermore, America does not have any policies that restrict outward growth of urban areas like the various green belts that enclose much of Britain’s cities. What’s more, the UK is a highly unequal country; the differences between it’s most and least productive areas exceed even post-reunification Germany. With that in mind, it seems reasonable to assume that the positive effects of liberalising the housing supply in Britain could be even larger than in America – output, wages and living standards could permanently rise by over a tenth.

By some measures British property is the most expensive in the world

It’s not just the economy that’s being choked by restrictions on increasing the supply of housing, there are serious welfare implications too. These effects are felt most acutely in the capital, which was ranked the most expensive city in the world to live and work in – that is, until Britain voted to leave the EU, decimating the value of sterling and cooling the property market somewhat (it’s now been pushed to third place). As housing becomes more expensive, rent swallows an ever-larger share of earnings and those who decide to remain in the capital do so at a cost. The Centre for London, a think-tank, estimates that private renters in inner London saw a 28% decline in disposable incomes between 2001 and 2011. Those in outer London faired little better, losing 8% of their disposable incomes to higher rental costs over the same period.

The capital may be the most prominent example of this problem, but it’s not just Londoners who are feeling the squeeze. Britain’s two second cities – Manchester and Birmingham – have seen something of an economic renaissance in recent years, similar to the one London underwent in the 1980s. But with London-style success comes London-style problems. While the supply and demand of homes previously balanced each other out, there is now a shortfall in both cities. This is largely due, as in the rest of Britain, to a shortfall in supply: since 2005, housing stock in the greater Manchester and Birmingham areas has grown by only 6% – that’s half the rate achieved in cramped inner London. Last year Birmingham saw average house price appreciation of 5.2%, while Manchester saw even larger gains of 6.8%, both higher than some central London boroughs such as Kensington and Chelsea.

house prices in Britain have risen five times faster than wages in the last five years

Another problem brought on by drastic house price inflation is the large build up of debt that has accompanied them. In Britain, first time buyers are saddled with vast amounts of mortgage debt. In fact, those born in 1981 have 50% more debt than people born in 1961. This makes them vulnerable to rises in interest rates, which are sure to come – rock bottom rates cannot persist in perpetuity. Many homeowners will retire before they pay off their mortgages.

Massive growth in property prices is also a huge driver of inequality, both within London and across the country. According to the Resolution Foundation, a think-tank, house prices in Britain have risen five times faster than wages in the last five years. With wages unable to keep up, young people hoping to one day own their own home must scrimp and save for longer than ever before. Many will never reach their goal. As well as the moral questions it raises, inequality is detrimental to economic growth. Expensive rents and mortgages transfer wealth away from poorer people, who tend to spend more of what they have, to richer folk, who tend to save more. The resulting drag on demand is certainly not desirable, especially in the face of the economic turmoil that is sure to ensue when Britain initiates the rather arduous process of formally departing from the EU next spring.

The causes: too much obstruction, not enough construction

The causes of this slow-burning, almost perennial crisis are plain and simple: demand for housing has vastly outstripped supply, which has sent prices skyrocketing in order to equate supply and demand. It’s similar to the surcharge pricing of Uber: if ten people want to hail a ride, but there’s only one taxi available, the price will increase up to the point only one person is willing (or able) to pay.

Over the last 20 years, Britain’s population has grown by 11% – twice the European average. Moreover, people these days are marrying later, divorcing more readily, and living alone more than ever before. These long term trends have pushed up demand for housing. More recently, demand has been further bolstered by rock-bottom interest rates that make mortgages cheaper and government housing policies, such as Help to Buy (a mortgage subsidy scheme).

demand for housing has vastly outstripped supply, which has sent prices skyrocketing

On the supply side, strict planning laws constrict private house building and therefore prevent the stock of housing from expanding sufficiently. A quarter of English planning applications are rejected and protective green belts now cover 13% of England. London is especially bad – by one count there are ten protected views of St Pauls Cathedral, including one from a specific oak tree on Hampstead Heath. Adding to this, growth in the stock of public housing has fallen off a cliff: in the 1970s local authorities built around 130,000 dwellings a year; they now build 2,000.

Bringing green belts into the discussion of Britain’s housing affordability crisis often elicits clamours to protect the UK’s remaining precious green spaces and a rebuttal of life in an ever-growing urban sprawl. But much green belt land is far from green. Far from the bucolic, elysian fields of green space inhabited by wildlife and dog-walkers, green belts are often used for agriculture – one-third of London’s and three-quarters of Cambridge’s green belts is intensive arable land – and a full 7% of London’s green belt is devoted to golf courses.

Stamp duty is another contributory factor. By taxing transactions, stamp duty acts as a brake on the buying and selling of homes. In 2014, the then Chancellor of the Exchequer, George Osborne, reformed stamp duty from a flat tax to a graduated one, turning it from a “very bad” tax to a simply “bad” one, in the words of the Institute for Fiscal Studies, a think-tank. While abolishing stamp duty is unlikely to solve Britain’s housing affordability crisis – it’s abolition would be unlikely to induce the construction of any more housing units, thus alleviating the chronic mismatch between supply and demand – it would probably result in better allocation of space. With moving house made less expensive, older couples would more readily downsize once their children have flown the nest, freeing up space for younger families that need it.

The solutions: how to loosen the grip?

If the diagnosis is simple, so is the solution: increase the supply of housing. To achieve this, regulations should be loosened on building height, type and location. The government should make it easier to add space by extending two or three story buildings to four or five or six storeys. Regulations on building type should be relaxed in order to allow more ways of building densely, such as the terraces of Islington and Pimlico.

Most important, perhaps, is the need to loosen restrictions on building location. Building on green belt land would only need to be very modest. According to Paul Cheshire of the London School of Economics, there is enough green belt land within Greater London to build 1.6m homes, at average densities – that’s enough homes to meet the capital’s housing needs for the next 30 years.

Proponents of green belts often claim that urban containment is necessary to prevent the urban small covering the entirety of our small island with concrete. This is in fact a myth. Green belts actually cover over one and a half times as much land as all of Britain’s towns and cities put together. Moreover, our towns and cities are actually remarkably green in their own right: the single biggest type of land use is parks and gardens. And they provide far richer biodiversity than the intensive farmland that covers much of the green belts. In fact, one often-overlooked benefit of building on green belts is that it would remove pressure to build on parks and playing fields – green spaces which do provide a tangible benefit to society. Looking more closely at the issue, one begins to realise that there is only one group of people who truly benefit from green belts: the people who live inside them and therefore have enjoyed a massive windfall brought about by soaring house prices.

there is enough green belt land within Greater London to build… enough homes to meet the capital’s housing needs for the next 30 years

For decades, political inertia and vested interests have prevented the radical overhaul of the planning system that Britain so desperately needs. In the 21st century, it simply isn’t good enough. The crisis in housing affordability is reaching a fever pitch, yet shows no sign of abating. Not only does it reduce economic dynamism and impede growth by impeding the efficient allocation of resources, not only does it infringe on young Britons’ welfare as rents and mortgage repayments swallow an ever-larger chunk of their wage packets, not only does it force first time buyers to take on mountains of debt to purchase a home of their own, but it undermines social cohesion by driving inequality and widening the wealth gap between those who own their home and those who don’t. Wealth inequality is becoming deeply entrenched in this country and the divide between home owners and home renters, between landlords and tenants, will only grow larger. Far removed from Margaret Thatcher’s vision of a home-owning democracy, we are on the road towards becoming a home-letting oligopoly. The causes are simple, as are the solutions. It’s about time someone in Westminster had the guts to finally rectify this perennial problem. We need to relax Britain’s stringent planning regulations, abolish the archaic and pernicious stamp duty on property transactions, and finally start building on Britain’s green belts. One can only hope that the government loosens the green noose of planning restrictions and urban containment before any more damage is done.

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