Regulation and other interference with the operation of the free market harms economic growth and leads to non-optimal allocation of resources. Capitalism as proved the most effective means of organising the means of production. There is a grudging recognition of this in the UK even by many Labour Party MPs although, sadly, not Gordon Brown.
Probably the market which is least free is the market in land. The Town and Country Planning act functions like the Soviet five year plan. Production targets for housing and commercial space are settled on by unelected committees and imposed on the building industry without any regard for price signals. A system like this creates some winners. I must admit to being a winner myself: because the price elasticity for the supply of housing in the UK is virtually zero it is possible to make money by investing in the existing housing stock safe in the knowledge that market forces will not increase the supply of housing and drive down its price, as would happen in other asset markets, such as the stockmarket. This effect, plus the incredible savings ratio of East Asia, and China in particular, which leads to a global glut of credit, has lead to UK house prices being higher than anywhere else on the planet - especially in London where supply constraints are greatest.
Unfortunately the system creates many more losers than winners. The English live in the worst houses in the developed world. UK interest rates are amongst the highest in the developed world, at least partly to constrain the rate of house price inflation. UK labour mobility is very low by international standards. There are many bad consequences of a planned economy approach to land use.
This is all presented, compellingly, by Alan W. Evans and Oliver Marc Hartwich in a paper for the Policy Exchange, the latest in a series pointing out the great damage created by the UK planning system. Sadly, no party is likely to make any significant changes to the current system. This is partly because it has widespread popular support. The authors of the report try to understand why voters support a policy that impoverishes them. It is possibly because voters enormously over-estimate the extent of urbansation in England as a whole and in the South East (including London). The figures are ten percent for England as a whole, and twenty percent for the South East. For the South as a whole the density is quite low as East Anglia and the South West have a low level of urbanisation.
I strongly urge you to read Evans and Hartwich's latest report, which is free to download. It is not a market fundamentalist polemic, but a balanced analysis of a severe but undiagnosed problem facing Britain today.
