Market Signals, Planning and Social Housing

By Gibb, Kenneth | The Town Planning Review, January 1, 2013 | Go to article overview

Market Signals, Planning and Social Housing


Gibb, Kenneth, The Town Planning Review


While there are well-rehearsed debates between neo-classical economists and town planners over the way the private housing market interacts with land planning (as well as disputing the nature and effects of market signals), there has been much less said about the effect of planning on non-market housing (and vice versa). Social housing is part of the wider housing system operating in a region. It is both impacted by, and impacts on, the private housing market. The economic literature on social housing, though sparse, does include wider perspectives such as new (and old) institutional economics. Quas-imarket approaches, such as the study of internal markets, have been applied to various public sector reform processes, including housing. Applying these market signals ideas to non-market housing is helpful because analysts tend to use a wider array of economic methods. In this paper, the relevant literature is examined and a simple framework for thinking about the economics of social housing is proposed and then illustrated by two policy examples. The paper concludes that housing planning interventions have to be rooted in a housing system-wide model and evidence base that connects the planning process to both private and social housing, one which is fundamentally about the interdependency between, and flows across, housing tenures.

Keywords: social housing, market signals, transactions cost economics, housing systems analysis, institutional economics

The standard economic rationale to reform the town and country planning system rests on beliefs about the efficacy of market signals and the distorting effects of planning rules and regulations on market processes and outcomes. While planning versus market debates have a venerable tradition in the social sciences, the natural terrain of this debate has been the private housing market and in particular new private supply, questions of the effect and consequences of urban containment and the relative importance of demographic and economic influences on future demand. Conventional economic analysis argues that planners need to take more account of the full costs and benefits of their policy consequences on the housing market (Malpezzi, 1996). It is also often argued that market signals ought to be explicitly adopted as information to assist in land release decisions (Cheshire and Sheppard, 2005). Third, economists often argue that land supply decisions might be better informed by state-of-the-art regional housing models that embody a wide set of factors influencing market evolution (Meen et al., 2005). Mainstream economics in policy influencing mode is well captured by the consistent body of work on the matter by Alan Evans (e.g., 1988; 2004) - the results of the planning system from this perspective are higher house and land prices, cramming, unaffordability and other problems associated with market distortions created by planners.

It is not the intention of this paper to revisit these debates. Rather, the focus here is on a relevant but neglected issue - the failure to give due consideration to the impacts of planning and market signals on non-market housing. Indeed, the more open and complex perspective that emerges from recognising the interdependence inherent in a given local housing system (such as a city region), between market and social housing and the planning system, implies that both housing analysts and putative planning reformers need to take a wider view. Moreover, making sense of economic processes in the non-market sector also lends itself, arguably, to taking a broader range of economic approaches (including heterodox schools) to housing and planning. In part, this paper seeks to justify a more general equilibrium approach (i.e., interdependence matters) to housing analysis (and therefore to housing planning). But it also suggests that a wider set of tools (i.e., those relevant to the economics of social housing) may make a useful contribution to the better understanding of housing systems as a whole (and therefore also contribute to the planning reform debate). …

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