Why British Prosperity is Hobbled by a Rigged Land Market


The British have the least living space per head, the most expensive office rents and the most congested infrastructure of any EU-15 country. Thanks to a rapidly growing population –  the result of a healthy birth-rate and immigration – these trends are worsening steadily. At the same time, the British economy is languishing in a prolonged slump brought on by a collapse of demand. The answer is obvious: Britain needs to build more. Unfortunately, the obstacles to development are formidable. Britain’s supply-side problems are of a different character to those holding back other struggling European economies, but arguably no less serious.

Britain is generally considered a flexible, economically liberal economy, in which insiders have few opportunities to rig the system for their own benefit. To the extent that supply-side problems are considered a significant obstacle to economic growth, attention generally centres on the country’s patchy skills base. A high drop-out rate from secondary school and weak vocational training are no doubt real constraints on the UK economy, but there is an equally, if not more, serious one. Housing, commercial property and infrastructure are central to a country’s economic and social well-being. The UK’s essentially rigged market for land and its restrictive planning system are as big an obstacle to economic growth as restrictive labour markets and protected professions are in Southern Europe.

The number of new homes built each year in Britain has lagged far behind demand from a growing population for 30 years. Despite faster population growth, house construction is currently running at half the level of the 1960s. At the same time the average size of homes built in Britain is now the smallest in the EU. The result of these two trends has been a steady fall in the amount of living space per head. Property prices relative to average household incomes have come down a bit since 2007, but remain very high. Moreover, the problem is not just restricted to the residential sector: Britain has the highest office rents in the EU. Firms in cities such as Manchester pay more than in Frankfurt or Milan. And transport infrastructure is very expensive to build in Britain, which is one reason why there is too little of it.

Britain is small and densely-populated, but does not suffer from particularly acute land scarcity. Around 13 per cent of the UK is built on, a lower proportion than in countries with a similar population density such as Germany, Belgium or the Netherlands. Britain’s problem is that the supply of new housing and commercial space is uniquely unresponsive to increases in property prices. Alone among the countries that experienced a house price boom in the run up to the financial crisis, Britain had no construction boom. The number of houses being built picked up only slightly, despite UK house prices rising by more than in any other developed countries except Ireland.

This situation has far-reaching economic and social consequences for the UK. Massive house price inflation has aggravated the UK’s already high levels of inequality by shifting wealth from the young (and property-less) to the old (and propertied). The poor availability of affordable housing undermines labour mobility – people are unable to move to where jobs are available because they cannot afford accommodation. Those on welfare are discouraged from working (as they then lose access to subsidised housing).  Congested, expensive infrastructure combined with pricey commercial property pushes up the cost of business, depresses investment and holds back economic growth.

The two reasons for Britain’s land-use woes – a complex planning system and insufficient land for development – are inter-related. A major constraint on the supply of land is the existence of a protected ‘greenbelt’: land around cities on which development is very tightly controlled. There are also strict controls over building on other so-called green-field sites. The market for land is essentially rigged in favour of landowners, who pay no tax on their land holdings and hence pay no penalty for sitting on it, waiting for the artificially-created scarcity to push prices up further. With no revenue from land taxes, local authorities are unable to capture any increase in the value of land that takes place when planning permission is granted. As a result, they have little incentive to open up land for development. 

The UK should, of course, redevelop so-called ‘brownfield’ sites – vacant or derelict buildings and land. But this will only ever comprise part of the solution to its land use crisis. By its very nature, brownfield land is concentrated in parts of the country where people do not want to live. And it is often very expensive to redevelop, not least because the government has stipulated that 60 per cent of new homes must be built on brownfield sites. There is no alternative to building on the green-belt, much of which is neither beautiful nor green. The greenbelt was originally established to combat urban sprawl, but is now an obstacle to sensible development. For example, allowing London to expand by between two and three miles in each direction would easily solve the city’s land-use problems. Increasing that proportion of the UK’s surface area under development by between 1 and 2 percentage points would address the country’s  land constraints  and would not involve concreting over England’s ‘green and pleasant land’. Urban sprawl could easily be prevented by good quality town planning.

The sanctity of the greenbelt, and green-field land more generally, has much to do with vested interests perpetuating a system which rewards speculation. Many Britons have profited from land scarcity (and the tax-free property price gains it has led to), and are determined to defend those gains. They may complain about their children being unable to buy a house, but at the same time will staunchly oppose new development. For their part, landowners are a powerful and politically well-connected lobby; many of the biggest sit in the House of Lords (the country’s upper house). They have a big stake in inflated land prices and are well-placed to resist the taxation of land.

A land tax would involve property owners paying a percentage of the value of their land in tax each year. If the value of their property rose, so would the amount of tax paid on it. This would achieve a number of things. First, local authorities would have a financial incentive to change land from agricultural to residential (and commercial) use as they would profit from the increased value of the land this would cause. Second, it would make it more expensive to speculate on future rises in land values, and some of those gains would be captured by the government. Third, construction companies would not be able to sit on large amounts of land (so-called land banks), and drip feed the market, maintaining prices at artificially high levels. Instead, land would have to be developed or sold, which together with the increased availability resulting from the freeing up of greenbelt land, would bring down the price of developing land and with it the cost of housing, commercial property and infrastructure. Lower land costs would also increase competition by reducing barriers to entry to the construction sector: for example, at present housing building is dominated by a small number of big players.

Supply-side measures are rarely a quick solution to a demand-side crisis. That is certainly the challenge facing other struggling European economies. Spain and France suffer from inflexible labour markets, Germany from over-regulated product and services markets, Italy from both. Academic research shows that addressing such problems improves economic performance in the longer term, but it provides no immediate boost to demand. However, the UK is almost certainly an exception. Addressing Britain’s biggest supply-side problem (its rigged market for land) could provide a more immediate economic stimulus by releasing massive pent-up demand, as well as lift growth potential.

Britain should turn its weaknesses into strengths. Other struggling European countries have a surfeit of housing and infrastructure and poor demographics. For example, boosting construction in Spain would do no good – Spain has far too many unsold houses and it is now suffering from net emigration (more people are leaving the country than arriving). In Italy and Germany, populations are stagnant, although there is more scope to boost spending on infrastructure than in Spain. France’s population is growing, but as a result of persistently strong public investment, it already has very good physical infrastructure. And thanks to a rational planning system and plenty of land, it does not suffer from a housing shortage. Unlike Britain, these countries have few low-hanging fruit.

Far-reaching reform of the greenbelt and the introduction of land taxes could open the way for a boom in housing and commercial development. Local authorities and the national government could agree to set aside a proportion of the funds raised through land taxes to fund investment in infrastructure. Moreover, land taxes would make the tax system fairer by taxing unearned income. And by redistributing money from the wealthy (who save a high proportion of their income) to construction sector workers (who save little of it), it would provide a further boost to economic activity. The current Conservative-Liberal government has pushed through modest reforms of the planning system, but has shied away from opening up the greenbelt and has no intention of introducing a land tax. 

An economy in which speculation is rewarded and wealth is increasingly concentrated in the hands of those with property risks stagnation. It faces an uphill battle to hold on to its young or attract skilled immigrants. Britain needs to strike a better balance between the interests of existing property-owners and the rest of the country. This includes acknowledging that the value of land is determined by the activities of society as a whole and not the landowner, and hence needs to be taxed accordingly.

Simon Tilford is chief economist at the Centre for European Reform, where this piece originally appeared.

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Clarifications for Simon Tilford


The following 10 points are meant to clarify:

1) Britain is not 13.0% developed. Britain is 7.0% developed. 93% of Britain is agriculture or open countryside.


2) Britain is not building housing at half the rate achieved in the 1960s. In 1968 Harold Wilson's government managed 418,000 new homes, while last year under 130,000 were built in England, Scotland, and Wales


3) Britain should be building at least 500,000 homes a year. As James Heartfield understands that production should be accompanied with 260,000 demolitions of the worst of the stock, making 240,000 NET ADDITIONS.

4) Northern Ireland has more in common with the Irish housing market and so it is better to consider Britain as England, Scotland, and Wales. Not the United Kingdom.

5) 13.0% of Britain is designated Greenbelt. It cannot be built on without exceptional reasons, even though much of it is poor quality countryside. However 100% of land cannot be developed for a change of use without a planning approval. That has been the law since the 1947 Town and Country Planning Act nationalised all development rights for the state. It is not the complexity of planning that is a problem. Planning AS A SYSTEM OF DENIAL in Britain means the a Freeholder is not free to build. That has been he case since 1 July 1948, when the denial of development rights came into effect.


6) Land Banking is NOT the cause of land inflation. The land banks of house builders could produce 300,000 houses. They need these land banks to plan production through the planning approval system based on the 1947 T&CP Act.

7) The 1947 T&CP Act underpins the inflated housing market, which is financed with £1,200,000,000,000 of live mortgage lending. The people with the interest in keeping the "rigged" market in planning approved land are the members of the Council of Mortgage Lenders, and the Treasury. You are not adequately looking at the role of the British state. Phil Best likes to promote Peter Hall's Containment of Urban England, but that was published in the early 1970s. The inflationary effect of the 1947 T&CP Act has been extreme since then, assisted by Hall's DEFENCE of that legislation.

8) Land taxation would indeed finance infrastructure. However you have to be clear about whether you would tax land IN ADDITION to leaving the 1947 T&CP Act in place, or whether you would tax land after REPEALING the 1947 T&CP Act. You are unclear on that. To leave the 1947 T&CP Act in place would mean punitive land taxation. To repeal the 1947 T&CP Act would enable land tax to be targeted to Freehold beneficiaries as a rational means to fund infrastructure.

9) To repeal the 1947 T&CP Act would result in much construction activity. The repeal would be a liberation, NOT THE TAX, which is just the means to fund infrastructure.

10) However repeal of the 1947 T&CP Act would threaten the CML's security and would result in localised housing market deflation, which would be unpopular. Local Authorities would lose their powers over local land owners and would have to plan BY PERSUASION, and not because they are the planning authority delegated by the state.


I hope that clarification is useful.

Ian Abley

Peter Hall's position clarified

That is an excellent statement of the situation. I hope Simon Tilford is following this discussion.

It just needs to be pointed out that Sir Peter Hall supports the Town and Country Planning system with the proviso that compulsory acquisition of urban fringe land by the government should have always been part of the system, and was in fact intended to be by the people who designed it.

Hall also supports the "New Towns" concept, saying they are a proven success that has wrongly never been extended to the game-changing level that the concept could have been, and in fact was abandoned after a few small-scale experiments. The point right from Ebenezer Howard's time, is that "New Towns" can be done on land that has been bought at genuine rural prices far enough away from existing built-up areas that no land owner bothers to "hold out" for higher prices. After all, there is a "rural land" market in the UK for such property, of which there is tens of times as much land as in the cities.

I am just as in favour of restoration of "development rights" to all land owners as Ian is, but I wonder if such a thing will ever be done in the UK. I do not share Ian's optimism for the potential "public support" for this. In fact I am quite baffled what he derives such optimism from.

Attitudes to growth, and developers dilemmas

This is an excellent assessment and I welcome Simon Tilford to the forces of light.

Besides my comment below about how aggressive "reform" will have to be, I have just one more cautionary comment.

"......construction companies would not be able to sit on large amounts of land (so-called land banks), and drip feed the market, maintaining prices at artificially high levels....."

When there is any "quota" system at all for the supply of land for urban development (unless it is so liberal that it might as well not exist), construction companies/developers are just "the meat in the sandwich". The only alternative to "land banking", and indeed to participating in gladiatorial bidding wars for the land supply, is "going out of business".

The only part of the world where house prices are consistently stable and affordable, i.e. 100 odd cities in heartland and Southern USA, has no quota system at all, i.e. no "20 year" growth boundary or central "infrastructure plan". A developer can literally incorporate their own municipality and build a new city or town or suburb nearly anywhere they like, providing the infrastructure by whatever means they like. Nobody "land banks" because the supply of land surrounding the city and accessible by automobile is so vast that there is always another site to be found somewhere by any developer once their latest project is completed. "Cornering" it all would be pointless.

Competition BETWEEN cities also helps: even if one city in a sizeable region enacts some constraints on development, the presence of other cities with affordable land acts as a safety vent for the policy outlier city.

I believe that a near-worldwide epidemic of unaffordable housing and price bubbles - even in land-rich countries like Australia and NZ and Canada and Sweden - is because the "urban planning" profession USED to regard affordable new homes, and infrastructure for expansion, as a laudable social and socio-economic goal, not a terrible mistake. Some of the older generation of local government “planners” who have been sidelined, still miss this era.

Urban planning used to be done by engineers, architects and economists, as a specialist branch of their professions. “Schools of Urban Planning” per se that have sprung up at most tertiary institutions since about 1990 are mostly the invention of environmental activists masquerading as specialists in a new “science”, who have made an end run around the ACTUAL “science” of urban planning that was well understood by the engineers, economists, and architects. The ideological takeover of local government bureaucracies has been underway for 20 years, and this has been helped very much by the fact that powerful vested interests reap massive zero-sum capital gains from growth containment urban planning.

Even though the "Municipal Utility District" system I describe above is unique to the USA, "pro growth" urban planning simultaneously in most cities in the western world prevented housing from inflating in price for decades - except in the UK where they enacted their green belts and "growth control" system in 1947. Peter Hall et al in their 1973 "The Containment of Urban England" (a massive 2-volume report) already identified enough of the problems that we are trying to get understood even today.

The whole thing is unfortunately far too complex for the general public to understand, and common beliefs about such things as traffic congestion, the cost of infrastructure, commuting efficiency, and the price of housing, are mostly 180 degrees wrong.

You have too dim a view of the public


Wrong...The housing predicament in Britain is NOT "far too complex for the general public to understand".

People in Britain, from pensioners to the young, British citizens to immigrants, know there is a predicament.

What to do about the predicament is the difficulty.


I don't share your dim view of the public. You flatter yourself that you are a force for light while holding others to be too stupid to understand an awkward complexity that is lived everyday.

If only expert commentators would stop blaming the public and:

a) Oppose the intergenerational divisions that government is encouraging around the issue of housing

b) Overcome the "green" ideology that supports the 1947 T&CP Act

c) Argue for immigration and population growth in addition to building far more housing in many existing and new settlements


Ian Abley

My reasons for pessimism

Ian, I am deeply pessimistic about the possibility of ever getting public support for the granting of development rights to the owners of all land. I know I can persuade many people given enough time one-on-one, but almost none of them think reform is possible even when they do accept the validity of my explanation for unaffordable housing.

There are some people who I really expected to "know better", who do not accept my argument at all. The pervasiveness of the belief in "protecting the green and pleasant land" is near total.

I have watched the "comments" threads on media articles and I think the English are something like 5 to 1 against allowing more development on Greenfields. Heck, even in Australia or Canada or New Zealand, with 20 times as much spare space per person, the public is nearly as irrational as the English about "more sprawl". (I suspect it is as bad in Sweden).

Actually participating in mainstream blogs and media comments threads is extremely discouraging. Like I say, the arguments against someone like me run at something like 5 to 1 and it is near impossible to keep up with all the debunking that needs to be done, and re-done, and re-done. And like I said, the false mythology that is followed by the most, extends to things like congestion and the cost of infrastructure and the conserving of resources - generally the opposite of the truth about the "more compact city" is what people believe.

I also have talked to many politicians and think most of them "get it" but are far too scared of the vested interests to give any sort of meaningful lead on the subject.

I assure you that I am indeed arguing your points a), b), and c) as long as there is breath in me. Lack of reform due to lack of public understanding is not due to lack of efforts on my part to explain and educate. It is the mainstream media and their journalists who frustrate me the most.

I am becoming more and more convinced that there is a most unhealthy cosy relationship between “journalism” and “bureaucracy” that underlies a lot of the problems with inadequate investigative reporting.

It is not just Councils and their urban planning where this shows up to be a problem.

Many areas of policy where there are decent citizens vainly endeavouring to hold government to some kind of standard of honesty, the issues are being totally inadequately covered by the mainstream media.

And generally, it is what suits the bureaucrats that will be the line slavishly followed by the media. Is the underlying problem, that these people went to the same universities, drink in the same cafes, and share the same political views?

Journalists need to wake up to the fact that bureaucrats are now almost as venal a threat to our future as the big banking sector. Bureaucrats actually do not act in any interests but their own. Turkeys do not vote for Christmas. Bureaucrats want promotions, pay increases, perks, job security, and power. What actually is best for society, the economy, and civilisation, does not enter into it.

I was very interested to read recently that Lee Kuan Yew set up the public service in Singapore on the basis of 3-year tenures for staff, who would then be back out into the real world of private sector employment. He was obviously a very wise student of human nature. No wonder Singapore is so efficient. It is a pity it is not a land-rich nation to which people can emigrate in larger numbers.

good tax bed tax

It’s not a tax. It’s a return to the benefits we have make it like a present to the landlords. When land have a good value, the government and the people deliver a great unearned present to those who happen to own it.”

"Reform" options and "total liberalisation"

I think I know what you mean; the concept of “property rights” has been utterly twisted in many countries, the UK first and foremost, to mean that urban planning can create economic “monopoly rent” for land owners, who can then “hold out” and “gouge” to their heart’s content.

This is actually the opposite of a "regulatory taking": it is a "regulatory giving", and true believers in property rights should find it utterly objectionable. It should not be regarded as a "property right" at all - owners of land outside the planners boundaries do not have the "property right" to change the use of their land, and this depriving of some owners of THEIR property right, creates a corresponding monopoly power for others.

The whole racket is smokescreened by certain “economic experts” who argue that “because the supply of land is fixed”, land prices always “find their market level anyway”, i.e. at “what people are prepared to pay for land of a certain use”. But zoning violates the underlying assumption of Ricardian land theory, that the MARKET can freely re-allocate land from one use to another.

There was a series of arguments in Court in the UK for years over this, between "expert witnesses" Prof. Alan W. Evans (University of Reading) and an urban planner named Grigson. Sadly the policy makers have never been clear about just how wrong Mr Grigson is.

Would we accept a “supply” system in bread or milk, where the prices “find their own level at what people are prepared to pay”, with 30% of people missing out altogether? Why is this acceptable with housing?

But the problem with simply "taxing the gain", is that the gain still exists, and the tax merely transfers a share of the gain to government. The price of land and hence the price of housing, remains unaffordable.

A tax has to be devised, that actually forces the owners of zoned land to either develop it or sell it. This includes the owners of brownfields sites as well as greenfields. Non-payment of the tax needs to result in forced sale of the property, and the government needs to be prepared to face down opposition over this.

Then there also needs to be a strong disincentive against speculators buying up properties as the "supply" increases, as happened in Spain and Ireland. If all these aspects are attended to, then the UK can have affordable housing. But it would be disturbingly easy to end up with a whole lot of new building on greenfields land without prices even falling, if the whole system of fiscal incentives and disincentives is not addressed as I suggest. The outcome would likely be stronger-than-ever prohibitions of greenfields development, as is happening in Ireland.

I really do not hold out much hope for the UK ever getting all this right. If I lived there I would be getting out while the going is good.

Prices are affordable in most of Southern and heartland USA because of TOTALLY liberal land supply; the UK will never adopt this approach. "Increases in supply of land" under any potential UK approach, will always be of quantities that in no way replicate the "total liberalisation" that applies in "affordable city" USA. Note that the USA does have unaffordable cities and bubble-volatility cities, and in these cases the liberal land supply does not exist.

The necessary "liberality" is that a developer can literally incorporate their own new municipality and build a whole new city somewhere with their own rules applying, if they want to. People who are not used to this and do not understand that it works very well, simply cannot grasp that this does not result in total disaster, no more than letting the private sector make cars instead of the government centrally planning it in minute detail, does not result in total disaster .