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Pricing Beauty 31/05/2007

Pricing Beauty

How to solve the crisis in land-use planning and affordable housing

How much does beauty cost? It depends, of course, on the eye of the beholder. Some will pay a high premium for designer jeans. Others will pay more for a stylish watch. Last month I read a report that red cars cost £500 more than black ones.

In all walks of life we’re prepared to pay more for beauty, that most intangible and changeable of commodities. Intangible, because it has no material function and is dependant on human perception. Changeable, because it is subject to developing tastes and fashions.

Our visible environment – the natural and man-made landscape – is no exception. Most of us ascribe value to the beauty of our surroundings. I argue that it is our failure to quantify this value accurately that is at the root of Britain’s disastrous land-use planning system and its two most deleterious side-effects – crippling inflation in house prices and the desecration of our urban and rural landscape with ugly building.

Ask any economist why house prices rise so much and he will point to the oldest law in his profession. Increased demand is not being met by an increase in supply. The demand side is fuelled by increasing incomes and the shrinking family unit (among other factors). But at the same time the supply of new and refurbished houses has dried up. Rates of house building are at their lowest levels since the 1920s.

Land-use development rights have been controlled by the state since 1947. It is government that is responsible, therefore, for the lack of land made available through the planning system for house building and other development.

A glance through Rettie’s publications reveals an enormous discrepancy between the value of land for different uses. An acre of farming land in Scotland can easily rise in value twenty-five fold, from say £3,000 to £75,000, on its owners being granted permission to develop it for housing. Permission that is in the gift of the state. It is that premium - £72,000 or perhaps £20,000 per family house in this example – that is the key element in the lack of affordable housing in Scotland.

Why does the state place such a premium on development? After all, this is effectively a tax on those trying to get up the housing ladder (usually younger and poorer people with growing families) in favour of those already on it (often wealthier, older folk). Not usual behaviour even for this country’s perverse tax system!

The planning system was established to protect our landscape from ‘over-development’. It reflects the widespread public desire to maintain the beauty of our countryside and cities even at the economic cost of doing so. In essence, therefore, this premium is the state’s best guess at valuing what we would collectively pay for the beauty of our visible environment.

The problem is, as we know to our cost, is that government has a quite dreadful record at valuing commodities, let alone keeping up with public tastes and demand for them. Beauty is no exception to this rule, and this is why the planning system delivers both insufficient development and ugly development at the same time.

This is not to say that no attempt should be made to ‘price beauty’. Instead, the pricing mechanism should be taken out of the hands of government and returned to those who understand the commodity best – the beholding public. In other words, the right to develop land should be held by the public that enjoys and can value its beauty. Development rights could be sold or leased according to the relative merits of development versus conservation.

Such a system would trigger powerful financial incentives for developers to build as attractively and discretely as possible, to minimise the cost of development rights. At the same time, development would go ahead where it was really needed, with a premium on swift decision making and flexibility. In combination, these forces would lead both to a lower premium for beauty (and therefore more affordable housing) and better quality development that local people were happy with. The £20,000 ‘planning premium’ discussed earlier would become a £10,000 ‘development fee’.

There are a number of precedents and recent innovations that make this concept practicable. In the past landowners have sold or leased land subject to covenants setting certain conditions of use. This is how Edinburgh’s New Town was built so beautifully and harmoniously. And today local councils are increasingly trading development rights for new infrastructure such as schools or play parks. Devolving these rights further, perhaps to the parish level, and making them cash-tradeable, would come close to creating an accurate market for pricing beauty.

(These ideas are explored further in The New Land Economy, available under the 'Research & Publications' page of this web site.)
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