Building on Brown Fields: The long term price we pay
by Paul Cheshire & Stephen Sheppard
Building on Brown Fields: The long term price we pay
Alarm bells should ring when the Economist tells us (Feb 12th 2000) that house prices in the
smartest bits of Notting Hill have increased by 3,773 percent since 1971 – nearly twice the rate of
appreciation seen on the vaunted all share index over the same period; or the Sunday Times runs
stories (23rd Jan 2000) about £1 million homes in London’s suburbs. But instead these stories had a
tone of almost complacent self-congratulation. Yet it is only a few years ago that the housing
market obsession was negative equity and how prices would never rise again. And now every pub
in London is awash with talk of how the house up the road went for half a million and how are
young people ever going to afford to buy. The interesting fact is that these two apparently
contradictory circumstances have the same cause. They result from the long term strangulation of
land supply for housing that we have lived with since the 1947 Town and Country Planning Act.
One of the architects of that act was the visionary Abercrombie. The trouble with visionaries is that
they do not like to be deflected by inconvenient facts. The inconvenient fact is that, as economists
put it, ‘markets get their revenge’. Green Belts for London are far older than most of us realise. In
his plan for London Abercrombie retold the story of the Elizabethan attempt to greenbelt London.
In a proclamation of 1580 the subjects of Queen Elizabeth I were commanded to “desist and
forebeare from any new buildings of any house or tenement within three miles of any of the gates”
of the City of London “where no house hath been known”. This three mile Tudor Green Belt was
later extended to 7 miles but was never fully enforced (another echo of the last 50 years). As
Abercrombie noted “ultimately avoidance of the Law became widespread as Cromwell and the
(Stuart) kings preferred to accept the payment of fines rather than see that all buildings were
demolished….all attempts to control growth lapsed”. In effect the fine became transmuted into a
green field development tax and a nice source of state revenue.
This cautionary tale did not deter Abercrombie; nor does it seem to have deterred the Urban Task
Force. The problem is that in a free society people try to do the best for themselves given their
incomes and the world they face. If they wanted houses outside the City walls of Tudor London –
after all the security such walls provided was no longer very relevant - they bought them. As
London’s population and income rose the demand for houses just kept rising and so long as land for
housing was only available within the walls, the price would have risen astronomically. And living
conditions would have been unbearably cramped. People were better off buying more space and
risking the loss of their houses at worst, or more likely paying a fine, than they were in the City. So
when the Urban Task Force upbraids the householders of the South East for building new houses at
lower densities than is the norm in the less land-strapped regions of the north they ignore the fact
that people in the South East are richer. And one of the attributes of a house which people wish to
buy more of as they get richer is space. So they pay a lot more for their gardens but they do buy just
a bit more space on average.
The constraints we apply via urban containment on the supply of the most basic attribute of housing
– space – have been progressively tightened since 1947. When the National Playing Fields
Association complains that - despite government assurances to stop the sale of school playing fields
for development - another 80 went last year, it is the flip side of the same coin of containment. The
amount of land made available is decided in physical units and is intentionally highly constrained
by the planning system. But market forces allocate the land that is made available. So developers
bid up its price. In turn this creates an incentive for impoverished councils to sell off any land they
own. Since people regard space not only as a desirable good but – like health care, eating out or
short breaks – a good which they want to buy more of as they get richer, the price of space
inevitably goes up.
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Building on Brown Fields: The long term price we pay
by Paul Cheshire & Stephen Sheppard
Figure 1 Real Asset Values
In the short term the space
available for purchase is
largely determined by the
existing stock of housing. But
in the long term, as Figure 1
confirms, if you restrict the
space made available for
housing development the
price does go up. Nor does it
just go up a bit. The real price
of housing land in England
and Wales showed no upward
trend from 1892 to 1939.
From 1947 to 2001, however,
its real price increased by a
factor of more than 10; at the
high point of the 1980s boom
it was 13 times its 1947 level.
The figure also shows the real
price of the FT All Share
Index to the same scale. This
illustrates the point that over
the past 50 years very few
prices have risen so much.
Only the wages of star soccer
players come readily to mind.
Public debate concentrates on
the impact that household
growth has on the demand for
housing and land. But it is not
this increase in physical units which drives the demand nor demand alone which drives prices.
From 1892 to 1931, despite an increase in the number of households of 61% and substantial growth
in real incomes, the real price of land actually fell. Transport improvements such as suburban
railways and, later, cars increased the effective supply of urban land to keep pace with increasing
demand. This is what would be expected in a competitive market. And pre-1947 that is just what
the market for land for new housing was. The premium necessary for servicing and converting
agricultural land to urban purposes would remain more or less constant over time in real terms.
As the increasingly precipitous booms and busts in the housing land market bear witness restricting
the supply of land does not just drive up the price; it increases the amplitude of price fluctuations.
There are short term changes in demand with the economic cycle, driven by changes in interest
rates, incomes and expectations but with supply almost fixed the only possible give is in prices. The
result is increasing instability in housing markets over the cycle. That is why the negative equity of
1991 had the same fundamental cause as the runaway boom of 1988.
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Building on Brown Fields: The long term price we pay
by Paul Cheshire & Stephen Sheppard
The present boom may still be more like that of 1980 than 1989 But it is still uncomfortable,
destabilising and massively inequitable. Rising house prices in London and the South East are
widely believed to be the main reason why the Bank of England has been reluctant to loosen the
interest rate noose around a real economy which, outside London, is still a long way from either
full capacity or inflation.
Another way of revealing the roots of the problem is to look at how the prices of different attributes
of housing have changed over time. Housing is a complex bundle of attributes. The overall price
paid for a house includes the individual prices of all the obvious characteristics of the structure –
such as its internal floor area, number of bedrooms or state of repair. Any particular house also
provides a given degree of access to localised amenities and public goods such as jobs, open space,
local schools, absence of noise, crime or pollution, public transport or the social mix of the
neighbourhood. Access to these are also attributes of a house which command a price. Such
individual attribute prices can be estimated reasonably accurately.
Table 1 : Changes in prices of selected attributes: Reading housing market, 1984-93
1984
1993
% Change
£13,694
£12,896
£28,969
£22,027
111.5
70.8
91.0
141.9
55.9
Sample mean house price
£51,066
£94,990
86.0
Reproducible attributes
Best secondary school
Central heating
Bedrooms
Bathrooms + WC
£7,090
£4,954
£2,599
£4,687
£13,414
£5,997
£2,801
£6,229
89.2
21.1
7.8
32.9
Planning amenities
Less industrial land
More open accessible land
More closed unbuilt land*
£74
£51
£102
£224
£227
£60
202.7
345.1
- 41.2
Space (price per m2)
Garden Space :
at centre
at periphery
median distance
Internal floorspace
£49.5
£4.5
£12.8
£171
£152.3
£22.9
£32.1
£425
207.9
404.9
151.5
148.5
Income (pre-tax)
from sample
South East (Regional Trends)
Price Level (1987=100)
* Mainly agricultural land to which there are no significant rights of public access.
Table 1 shows a selection for an average owner occupied house in the Reading area and how they
changed between 1984 and 1993. The prices are estimated from samples of houses for sale and the
household incomes are those of their occupiers. Household incomes of owner occupiers more than
doubled in Reading over the period but the average price of houses went up by only 86% (1993 was
the trough of the most recent housing price cycle). If we look at price changes for the different
attributes, however, we see that the price of what one might call ‘reproducible’ attributes rose
substantially less than either prices in general or house prices. But the price of attributes in fixed or
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Building on Brown Fields: The long term price we pay
by Paul Cheshire & Stephen Sheppard
shrinking supply increased substantially faster than general prices. These included land and space
and where land was most restricted in supply – at the edge of town – it increased most.
These data have a number of interesting implications. They provide evidence that people value the
‘outputs’ of the planning system. Access to open space, whether it is internal to the city in the form
of parks or playing fields or unbuilt farmland or green belts, commands a price. So does more
distance from industry. The ‘goods’ the planning system produces really are valued. This is no
doubt one reason why the system commands widespread support. However it is probably the case
that people are unaware of the price that is paid for these planning amenities. Their values are not
just incorporated in the price paid for a house. There is also an extra cost. That is the higher price
paid for all housing land just as space and the more cramped conditions in which we all have to
live. Inaccessible farmland is substituted for accessible (and - with intensive agriculture – more
environmentally friendly) private open garden space. Planning amenities are not paid for directly so
they appear to be free. But because they are only produced by restricting the supply of building
land, they cause the price of land and thus of housing to rise. Yet again we find there is no free
lunch.
This is what drives the long term behaviour of the housing market in the UK. The problem is that
the longer we delay the reform of our planning system to make it less restrictive of overall land
supply, the greater the problems become. It also becomes progressively more difficult to reform it.
It creates unseen costs, but these costs also generate assets. There is a huge redistribution of real
wealth to those who own homes - particularly homes occupying more land in the million pound
suburbs - and away from those who rent or are in the early stages of buying. There is also a
distributional effect via the provision of planning amenities. Those with better access to open space
are on average richer households. The planning system redistributes real benefits to the rich. The
greater the values of these assets become the more they will be defended. But also the more they
will cost.
There is yet a further implication for the long term. As can be seen from Table 1 people pay
substantial prices for access to amenities. Moving an average house from the secondary school
catchment area with the lowest GCSE scores in Reading to the one with the highest increased its
price by some 15%. Since access to amenities which are only available to those who live close to
them is fixed, if they become more desirable or if some people’s ability to buy them increases
relative to others, over time there will be a sorting process. The increase in income inequality in
London over the past 20 years has been substantially greater than in other regions. As the
distribution of income becomes more unequal the ability of richer households to outbid poorer
households for locationally fixed amenities is further strengthened. As a result the rich get even
more exclusive occupation of the nicer neighbourhoods and the intensified income inequality is
transmuted into more intense social segregation. In house prices we observe this process in the
increasing price differentials between fashionable postcodes and unfashionable ones; between Elgin
Crescent and Harlesden. Since access to some of the locationally fixed amenities, such as better
schools, better training facilities or non-criminalising peer groups, perpetuates advantage,
increasing inequality in the overall distribution of household incomes inevitably leads not just to
sharper social segregation but to worse social exclusion.
The short term problems restriction on land supply inflicts are serious. In the absence of radically
less restrictive policies the short term problems will certainly get worse. Wait for the next big one
in the housing market cycle. Public concerns focus on these short term symptoms but it is really a
long term problem. And its solution would be long term. It took 50 years from establishing
London’s Green Belt to get where we are and because new development is but a small fraction of
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Building on Brown Fields: The long term price we pay
by Paul Cheshire & Stephen Sheppard
supply and expectations would take time to adjust it would probably take 50 years of a less
restrictive policy to get the housing market back in balance. Advocating a less restrictive
containment policy should not be confused with a build anywhere policy however. Landscape that
generates substantial public amenities, heritage coastline and those residual semi-wild habitats
modern agriculture has not destroyed need strong protection. But strong protection of real amenities
and environmental assets is quite different from blanket protection of all farmland.
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