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How should a densely populated country plan the use of its scarce land? What should be the roles of central and local government in making decisions? What criteria should guide them? What is the balance to be struck between the interests of local residents and of those living elsewhere, or between the environment and economic activity? These are among the most contentious questions in British political debate.
As the cliché goes: "There are no easy answers." But at last people are asking the questions. Kate Barker of the Bank of England's monetary policy committee poses them in her interim report -- Barker Review of Land Use Planning -- out recently. The Campaign to Protect Rural England asks them in its attack -- Policy-based evidence making: the Policy Exchange's war against planning -- on the campaign by Policy Exchange to liberalise restrictions on new housing on green fields. The prime minister is about to ask them in his desire to override local authority objections to new nuclear power plants.
These are deeply -- and rightly -- political questions. But economic analysis can offer at least three suggestions: first, price signals need to play a bigger role in guiding decisions; second, responsibility among the organs of government needs to be aligned with incentives; third, better incentives should also help private interests make the right decisions.
Ms Barker's report provides potent examples of the economic signals now provided by the market. In south-east England, for example, agricultural land is worth £12,000 per hectare on average, while land designated for housing is worth £3.2m and land designated for general business use is worth £1.7m. In the case of housing the discrepancy is close to 306 to one.
In its rejoinder to Policy Exchange, the CPRE argues that: "The recent boom in house prices was driven largely by demand-supply factors rather than lack of supply." In the long run, however, limitations on supply are certain to affect prices. The beneficiaries are those who already own houses and particularly those lucky enough to own housing in protected rural areas, whose Nimby (not-in-my-back-yard) attitudes offer the perfect combination of moral superiority with self-interest.
The latest Barker report shows that planning restrictions are also important for business and, again, price data are revealing. Of the world's 15 most expensive prime commercial property locations, five are in England. Costs in London's West End are the most expensive in the world and double those of Paris, the next most costly European city.
There is some evidence, moreover, that the planning restrictions impose wider economic costs. They are, for example, a barrier to entry, competition and productivity growth in the retail sector and inhibit the growth of clusters of economic activity.
Now consider the assignment of responsibility. Local authorities are subject to Nimby pressures from residents but have no responsibility for the wider consequences of refusal to permit development. This is a matter of "Óoined up" government. There is no better example of the opposite than the government's decision to allow a net annual inflow of some 200,000 immigrants a year while failing to address the obvious implications for housing and infrastructure.
Again, many of the benefits of development fall outside the area for which local authorities are responsible. But the latter have little incentive to pay attention to such "spill-overs". For some projects -- and particularly ones of national or wider regional significance, such as airports -- involvement of national government is inescapable.
Finally, local authorities also have next to no financial incentive to promote development. But the question of incentives is broader than that. At present, developers and property owners may delay in exploiting permissions they already possess. As I have argued in previous columns, site-value taxation is one way of stimulating development. It can also be a way of rewarding local authorities that encourage it.
The discussion of planning is timely. Progress in streamlining procedures has already been made, but considerably more is needed. Evidence on the massive price discrepancies introduced by planning restrictions should also be brought into the heart of the process, with a presumption of development where these pass a certain threshold. Levels of governmental decision-making must be more consistent with the impact of decisions. Incentives for development need also to be introduced, in place of the present disincentives.
This is not to argue, as the CPRE and similar lobbies wrongly charge against development's proponents, that the UK is to be put under concrete or environmental considerations ignored. To support more development is not to support any and all development. But the balance has tilted too far against it and must now shift back.
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