What Elinor Ostrom Can Tell Us About Housing and Land Use Governance
The UK and many other Western countries have a substantial shortage of housing located near high wage jobs. This shortage prices young people and others out from moving to urban centres of economic opportunity, reducing average wages and GDP. The housing shortage causes rents in London and much of the South East to be more than double what they could be given the relatively low cost of building more homes, and increasingly puts home ownership out of reach for all but the affluent.
Since the current land use planning system was introduced in 1947, house prices have risen far above the cost of building more houses. But a majority of voters are homeowners, and successive governments have been keen to avoid any policy which would increase home construction, reduce house prices and thus alienate home owning voters. The 1947 planning system removed the automatic right to develop land, creating instead a requirement to obtain planning permission for new construction. Over the years, this has morphed into a regime which grants a quasi- right to block construction – protecting homeowners, who are risk averse about their largest asset, their house, from changes in their neighbourhood. Homeowners, however, have no way to sell that right so Coasian bargaining – which would enable them to benefit from allowing more development to occur – cannot get off the ground. It is no answer to say that residents can simply sell their home if they dislike the status quo because any future buyer will find it no easier to negotiate win-win outcomes to allow more construction. There may, however, be ways to make such negotiations easier, and in doing so, help address the current housing crisis.
The most expensive component of the average UK home is not the replacement cost of the structure or the land, but the planning permission for it to exist. The difference between the total value of UK homes and the total cost of building those homes today – the excess of price over current building cost – is approximately four trillion pounds. This is an eye-watering two-fifths of the entire net worth of the United Kingdom on the national balance sheet. The number is so high because it is extremely difficult to secure planning permission to build more homes within an easy commute of cities where the most productive firms are located. Scarcity has pushed house prices ever higher.
The shortage of homes is not driven by a lack of land: nearly half of the homes in London are in buildings of only one or two floors, even though building extra storeys would create more housing. Most of London is characterised by low density mid-twentieth century development – 1930s semi-detached or 1950s council houses, which do not make use of vertical or horizontal space. Attractive and popular historic parts of Central London like Soho, Pimlico or Mayfair have five to ten times more housing per acre than those later areas simply because housing in these areas makes more of each plot and is several storeys taller.
At current prices, it is economic to add many more homes to areas outside central London, but to do so in ways that also make it more pleasant, walkable and livable. Unfortunately, it is incredibly difficult to obtain planning permission to do so. The 1947 planning legislation was introduced in part because of concerns in the 1930s about the loss of open space and low density urban sprawl but the blocking power the new framework created for homeowners has culminated in a situation where it is excessively difficult to build new homes whether at high or low densities, in urban, suburban or rural areas. The difficulties in obtaining planning permission across the board limit the construction of new homes and inflate prices, inadvertently contributing to the housing crisis.
Even if there were insufficient room to add more homes within existing cities, a number of communities might be willing to allow the building of more well-designed homes on land next to their village, but are prevented from doing so by rules preventing the construction of housing on the ‘green belt’. Green belts were facilitated by a 1955 government circular, to prevent settlements growing outwards and merging as many, including London, had done for centuries. Green belt land, however, has no particular environmental or amenity significance. There are separate designations (such as Areas of Outstanding Natural Beauty) for land with those attributes. Much green belt land is not accessible to the public and is used for industrial agriculture.
In her groundbreaking research, Nobel laureate Elinor Ostrom explained how many local communities have successfully managed their own common resources – in some cases for hundreds of years. However, Ostrom’s research was often focused on issues such as the management of fisheries and forestry assets and is not widely known in the field of urban planning. As a result, the implications of her ideas have rarely been applied to housing and planning issues. A recent working paper from London YIMBY, however, explores how Ostrom’s research may help to address the housing crisis.
In a housing and planning context, the relevant common pool resources are the amenities within a particular locality, that residents may wish to protect. If they are free to do so, Ostrom’s work suggests that it may be possible for the people within a community to manage those common resources for themselves through a ‘self-governing’ structure. Ostrom argues that such communities typically have more practical knowledge, a better ability and stronger incentives to think about how to manage their local amenities well than either national planning bureaucracies or even more localized bureaucracies such as those of the metropolitan, district and county councils that currently supervise the planning system in the UK.
The London YIMBY paper notes that smaller groups of citizens often find it easier to organize and reach agreement than larger numbers of people – i.e. the transactions costs in these contexts are lower. Furthermore, if the planning institutions would allow it, small groups of homeowners may have strong reasons to seek permission for more housing on their own land, as such permission may often double or treble the value of their property. If such groups were able to use their organizational ability to manage their common amenities through an Ostromian self-governing structure, then this would enable Coasian bargaining to arise over the gains from allowing new construction between current residents and prospective developers. In effect, this would allow a more flexible and localized approach to negotiating the gains from development and controlling its design than might be possible under the periodic proposals for a ‘land development tax’ that have been implemented and repealed at various points in the history of the UK planning system.
According to the YIMBY paper one possible method for expanding the amount of housing would be to let small groups of residents, for example those living on any stretch of a street between two crossroads, or any single block of houses bounded by streets, decide to choose a design code giving their community permission to extend or replace existing houses. In this way, residents might, for example, choose to allow mansion blocks or terraced houses instead of two-storey semi-detached houses; or the residents of a block of houses might decide to replace sheds at the ends of their back gardens with a row of mews houses. Similar proposals might come forward in more rural or suburban locations, though the density and character of the development in question would likely be different given the different environmental and amenity contexts in those settings.
This model would allow local authorities such as parish or district councils to focus on more strategic matters and, as smaller groups become more active over time, to act as a forum for dispute resolution between those groups. Ostrom’s work suggests that self-governing structures work best in the context of ‘nested’ governance arrangements which resemble a model of subsidiarity. In this model, lower level institutions could become the focus for many purely local decisions but when these institutions clash then recourse might be made to higher level jurisdictions to resolve the dispute – and in the UK context local district planning authorities would be the obvious arena in which this function might reside. The key advantage of the Ostromian model over the status quo would be the capacity of local residents to bring forward and to negotiate the design of development proposals rather than have this function reside solely within local authority planning departments as it does at present.
Taken together a move towards this Ostromian model, offers the prospect of incentivizing much needed development by allowing those most affected by it to have a say in controlling its design and in receiving some of the benefits from allowing new building to proceed. If successful, these techniques might easily add millions more homes within London alone. In effect the YIMBY paper suggests that planning reform on Ostromian lines would empower small groups of homeowners to choose to amend the regulatory regime that currently restricts the supply of housing, and to benefit and improve their area (as they see it) by doing so. Because some homeowners will benefit, the reforms could be supported by a majority coalition of renters and those homeowners.
Reforms of this type would also be compatible with another principle that Ostrom emphasized – that of ‘polycentricity’. While the proposals would probably require enabling legislation, they would not mandate the introduction of the new governance arrangements – rather communities would be able to choose whether to stay within the existing regulatory framework, or to opt out of it. In this way, successful examples of Ostromian self -governance could be spread through a decentralized process of trial and error learning and imitation – avoiding the dangers of a ‘blue-print’ or ‘one-size fits all’ regime.
Recently, the Government’s Building Better Building Beautiful Commission has suggested trials of similar ideas, citing London YIMBY, and the Royal Town Planning Institute acknowledged that such ‘micro-democracy’ may be ‘fruitful’. A recent report by Founders Pledge concluded that such ideas may have a high impact. The Government has announced its intentions to ‘build build build’, but the details have yet to be announced. London YIMBY is hoping that they will build on Ostromian principles in way that may contribute to an alleviation of the housing crisis and its associated ills of poverty and inequality. London YIMBY believes that Ostromian self-governing structure, led by very small local communities, could also offer an easy, and potentially popular way to help the economy to rebound after the current pandemic induced recession.
John Myers is co-founder of London YIMBY and YIMBY Alliance, campaigns to end the housing crisis and make better places with the support of local people. If you wish, you can sign up for their email newsletter at londonyimby.org.