Philip Ridley, MSc PGDip. is a Licentiate Member of the Royal Town Planning Institute.
A fragmented society at loggerheads
Those who have fought inappropriate development in their local area know that we suffer real issues that the planning system attempts to resolve; whilst developers will say that the planning system stifles economic activity.
With such conflicting points of view it should be no surprise that we are divided about how to reform the planning system. Local people want more influence, cash strapped local government seek more money from developers to install infrastructure and central government and the E.U. want an already stretched planning system to resolve global issues. Meanwhile, the development industry is attempting to keep afloat despite horrific consumer and credit conditions.
We still haven't implemented the last set of reforms!
The planning system, poised to adopt the new Localism agenda, is yet to absorb New Labour's reforms. For example, many Council's, after investing hundreds of thousands of pounds in policy work are no closer now to implementing the Local Development Frameworks which were supposed to replaced the old Local Plan system. Those reforms were supposed to speed up the planning system!
Planning as a recent phenomena
The first question to ask about the planning system is, why have one at all? This question is rarely asked, even though Britain did not have a formal planning system prior to 1948.
The recent implementation of a planning system in 1948 means that almost all of Britain's cherished historic buildings and conservation areas were completed prior to there being a planning system at all and most of our despised buildings and places were built under the watch of the planning system since 1948.
The end of a free market in development
The fundamental reason localism will not work, is because it does not resolve problems in the financial system that I believe made planning necessary in the first place.
I believe that the main trigger for requiring a planning system was when Britain failed to return to the gold standard after World War II. Britain left the gold standard during wartime so that it could print money to pay for the war effort. This was a de facto devaluation of the currency, or a hidden tax on the whole of the economy which people accepted because of a clear and present danger.
Failure to re-instate the gold standard after the war ended left Britain with a paper money standard during peacetime, with no war to fund. The value of Sterling was no longer determined by how much gold the Bank of England had in its vaults but on whether the government could keep its hands out of the piggy bank and resist the temptation to print money.
However, intent on developing a welfare state, the British government printed money hand over fist and has continued to do so, ironically adopting the economic policies of National Socialism.
The Bank of England did the same, using the new money printing facilities to extend vast and increasing amounts of liquidity to commercial banks, which channelled most of that into corporations, at the expense of small business which did not have the same access to this credit window but suffered increased costs of operation caused by inflation.
Development was therefore skewed from family builders to corporate volume house builders and capital became concentrated into fewer hands.
- What You Should Know About Inflation by Henry Hazlitt (1964): "What you should know about inflation"
- Jorg Guido Hullisman "The Cultural and Spiritual Legacy of Fiat Inflation"
- Lew Rockwell interviews Jorg Guido Hillisman: "The Austrian theory of the Business Cycle" (lewrockwell.com/podcast/?p=episode&name=2008-08-11_017_austrian_theory_of_the_business_cycle.mp3)
Dominance: One of the most common reasons for objections to development is over-dominance caused by the relative bulk and scale of new development. I believe that misallocation of capital caused by the paper money standard is what causes new development to tower over older properties and become overly dominant.
Volume house builders and corporations have unfair trade advantage, being able to access freshly printed money, the availability of which is determined by global capital flows that tend to leave most people behind. This concentrates building activity into a few hands resulting in a disjointed built environment. Indeed, some economists claim that recessions can be pin-pointed by when the tallest buildings are built, because this tends to occur when capital is most misallocated and a recession is the economy's way of re-balancing the economy.
In contrast, credit in the old system was based on loans from the local bank manager, linked to local savings accounts. These were more likely to be invested in small family businesses. Because money was not printed from thin air, one had to commit their money to a savings account for fixed periods of time, unlike today when money can usually be withdrawn on demand. Less money was available, but it had greater value and was distributed more equitably.
This ensured that money and credit were spread more evenly across the economy. The density of development in any given area would therefore be affected by relatively the same credit conditions. This explains why historic buildings tend to conform to a similar rhythm and scale, with density varying by location. You may for example find taller buildings around a railway station or in the middle of a city, but all of the buildings there will be of a similar scale if constructed prior to the world wars.
Inflation is one of the main symptoms of all the money printing carried out to fund the welfare/warfare state and corporations. Inflation is effectively a tax which extracts wealth from everybody's income, savings, assets and pensions, and it disproportionately affects the poor, whilst destroying the middle class. I believe that this is the main reason why builders, even the volume builders, cannot afford good materials and often cannot afford top quality design. The more this system continues, the more inflation is created, the worse things become. Planners are constantly battling with developers to improve design and material quality, but are fighting an uphill battle. No matter how many fancy ideas planners come up with to promote good design, they cannot battle the forces of inflation except in isolated examples.
Destruction of skills: Quality has also been destroyed by the de-skilling of the workforce. Prior to the welfare state, taxation and regulation of employment was very low, and labour was less costly for consumers and industry. Therefore, rather than invest solely in technology, businesses would also invest in skills and workers. Many more of our children went through apprenticeships funded not by the tax payer, but by private businesses.
However, the heavy taxation and regulation of labour now means that machines and computers cost less for industry per unit of economic output. This has artificially skewed the economy towards de-skilling, ending the contribution skilled craftsmen once provided our built environment. This problem combines with inflation to further reduce design quality.
End of the Freeholder: Residential estates were once maintained and regulated by the Freeholder. This would be a private company often controlled by residents which would regulate extensions and alterations to properties and maintain the public spaces and roads. There are still a small number of estates operating this way, but they are few and far between. However, inflation meant that freeholder rents could not keep up with the costs of maintenance. As a result, freeholders could no longer maintain their estates. I have seen this happen in recent developments where the developer attempts to provide local community facilities but cannot keep up with the cost of providing them.
As a result, local government assumed the responsibility of maintaining the public areas in residential estates. However, having no financial stake in the value of properties, they would be far less willing to maintain design standards when properties were altered. Their funds also tend to be limited, with many areas deteriorating over time.
Lax lending to homeowners: We all know that lending to homeowners has become a problem. What few are aware of is how this occurred. Throughout history, mortgage debt was always considered a liability until paid off, because there always exists the risk that a homeowner will default. This previously limited the amount banks could loan because there is a limit to how many liabilities a bank can hold on their balance sheet. This is why banks would not loan more than 2.5x salary, right up until the early 1980's, ensuring that first time buyers could afford property and that existing homeowners could move up the property ladder.
However, during the 1990s, governments decided to allow mortgage debt to be considered an asset. This legalized what was previously considered fraud. As a result, the limits were off. Government also allowed retail banks to link up with investment banks. This allowed banks to package mortgage debt and gamble it on world markets in the form of derivatives. At this point, mortgages were being issued like hot cakes simply to provide the investment bankers more chips to gamble. This is why lenders were happy to lend even to those who could not demonstrate a good income.
Speculation in real estate was caused most recently by this, but has also taken off ever since we left the gold standard, because banks have been printing money from thin air to effectively let people speculate and gamble on housing. As a result, residential real estate has become overvalued relative to farmland and commercial real estate. Capital has also chased one real estate bubble after the other, rather than go where it should, into being invested productive enterprise. I believe that this is the reason why there is so much pressure to build on open countryside and why there is a need for planners to protect commercial areas from residential development. We also of course also suffer downward pressure on commercial and farm land because of the high taxes and regulations that are causing jobs to go overseas, making us reliant on imports.
If the banking system could re-balance into a less fraudulent system, and if tax and regulation were slashed for entrepreneurs and farmers, I believe that there would no longer be a need to regulate where development goes. High grade farmland would protect itself from development because it would yield more and be worth more in that use than as residential real estate. Green Belts and other prohibitions on development in the countryside would no longer be required. The same would be true for commercial development. With productive commercial uses becoming worth more than residential real estate, commercial developers could expand commercial centres and would no longer need to build out of town developments. I believe that a more balanced banking system is what restrained built up areas in the past, and that this situation could be re-instated.
Conclusion: Of course, only a perfect financial system would create perfect forms of development, and that would take time, meaning that some planning regulations may need to remain or be phased out over time. However, if we move towards sound money and a sound banking system, most of the problems dealt with by the planning system would evaporate before our eyes and the planning system could be phased out.
These problems cannot be solved by more government intervention, by more involvement of the community and certainly not by more taxation and regulation of developers. The fundamental reason localism will not work, is because it does not deal with problems in the financial system that made planning necessary in the first place.
The financial crisis of 2008 was the economy telling us that the economy wants the malinvestment to be liquidated, that it would spontaneously move back towards sound money and banking practices if only we would let it. Unfortunately, the bailouts provided more of the same, extracting yet more capital from the grass roots economy to prop up government and the corporate sector. Maybe government is aware that this will cause major challenges for the built environment, which is why they are moving towards the localism agenda, but we have this chance to reform the system if only people can become informed about how legalized corruption and fraud in the banking system affects them and their environment.