ADBI Working Paper 569 Hilber and Schöni
control”. This makes all decisions about whether development can go ahead subject to
local political calculations and, therefore, more uncertain. Development control also
facilitates “not in my backyard” (NIMBY) behavior.
Early empirical evidence by Hall et al. (1973) suggests that the UK planning
system may have already imposed binding constraints on construction as early
as the beginning of the 1970s. While rigorous empirical evidence on this point is
lacking, it is highly plausible that the green-belt constraints—which affect all major UK
cities—started to become binding around 1970, when growing demand for housing, in
effect, hit the green-belt boundaries. When this happened, NIMBY homeowners (and
private landlords) residing near green belts started to oppose new construction in their
local authorities, effectively imposing gradually more severe “horizontal” constraints on
construction. This, in conjunction with various “vertical” constraints (i.e., building height
restrictions or so-called “view corridors”
7
), gradually made housing supply less and less
price elastic. Thus, as the demand for housing continued to grow, especially in the
Greater London Area (the UK’s economic powerhouse), real house prices started to
rise drastically, and commuters, desperate for affordable housing, started to “jump” the
green belts.
Increasingly binding planning constraints are the likely explanation why housing
construction numbers have been in continued decline since the late 1960s. In 1970, the
UK built close to 380,000 new homes, almost three times as many as today. In those
days there were fewer constraints on where new housing could be built. Price signals
still provided important information to developers, architects, and builders on where
and how much to build. Today, the planning system completely ignores price signals
and effectively tries to prevent residential development nearly anywhere, particularly
where it would be attractive to build. If price signals were taken into account, more
housing would be built in attractive areas, with more high-rise buildings in town centers,
and more single-family homes further out (Hilber 2015c).
Hilber and Vermeulen (2016) provide the arguably most rigorous econometric evidence
to date for England on the impact of local land-use planning restrictiveness and other
types of supply constraints on local house prices. What the study finds is that local-
earnings shocks lead to much greater local house price increases in severely planning-
constrained locations. The study provides evidence that can be interpreted in a causal
sense: regulatory restrictiveness causally affects house prices. While regulatory
constraints appear to be binding everywhere, the effects are starkest in London and the
southeast, where refusal rates (i.e., the proportion of planning applications that are
refused by local planning authorities) are highest and land-use planning restrictions
most binding.
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Housing is not being built in the most desirable areas, where demand
7
View corridors, by means of limiting the height of nearby buildings, aim to preserve an unobstructed
view to places deemed of particular value. London’s St. Paul’s Cathedral, for example, is protected by
six view corridors imposing constraints on construction in large parts of Central London. One such view
corridor—created in 1710—imposes a view from King Henry VIII’s Mound in Richmond Park to St.
Paul’s Cathedral at a distance of over 10 miles (16 kilometers). The view frames the cathedral through a
special gap in a hedge, down a specially maintained clear avenue and then all the way across London.
This particular view, still enforced today, has severely limited development around Liverpool Street
Station—the third most frequented train station in the UK and one of the most central and busy areas in
London.
8
Hilber and Robert-Nicoud (2013) provide a theoretical argument for why not all regions and local
authorities are equally restrictive. They argue that land-use restrictions benefit owners of developed
land via increasing prices but hurt owners of undeveloped land via increasing development costs. In
such a setting, more desirable locations are more developed and, as a consequence of political
economy forces, more regulated. Translating this theoretical argument to the institutional setting of the
UK, this implies that, in the wealthiest and most desirable local authorities with the strongest demand
pressures (mainly in the Greater London Area), homeowners and private landlords have most assets to
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