The use of residential land and house prices as a planning tool

In recent years the process of planning for housing has undergone rapid change. The Green Paper 'Household growth: where shall we live ?' published in November 1996 reported that an additional 4.4 million households are projected to form between 1991 and 2016. Later projections suggest that this number could be even greater. This has raised concerns about the allocation of the predicted dwellings across the country as well as whether that number of additional units will actually be necessary. The new government has responded by suggesting that regional organisations should play a greater role in mediating land provision. In the context of planning for housing, they emphasise three main changes: the replacement of a top-down 'predict and provide' approach with a more bottom up 'plan, monitor and manage'; specific targets for the re-se of brownfield and urban sites and a presumption towards higher density development; and an emphasis on the importance of evaluating policy outputs and outcomes in the context of potential alternatives. These initiatives point to important reasons for examining the role of price as a planning tool with respect to decision making, monitoring and evaluation. Price has three interrelated roles in a market system: it provides information about the value and cost of goods and resources such as land and housing; it provides an incentive to increase or reduce consumption or production in response to relative prices; and it rations the use of scarce resources. It thus summarises large amounts of information about market valuations and opportunity costs and expectations of future values. Yet it remains little used and poorly understood within the planning system. Drawing on a research project conducted for the DETR, this paper explores the conceptual basis underlying the potential use of price in the planning system as well as the practical difficulties of implementing such a planning tool in practice. After summarising the findings of the economic literature on price determination and the impact of planning on land and house prices, it develops a simple model of land and housing market relationships showing where planning enters the system and hence the interaction between planning and price. It goes on to explore the potential use of price in planning and argues that while in principle the case for using price in planning is very strong, in practice its widespread adoptions requires not only major improvements in available data but also more detailed information on the interpretation of price in particular contexts. In conclusion, it suggests that such information can best be gained from conducting 'action' research in a variety of case study areas.

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