A recent paper by Chang-Tai Hsieh and Enrico Moretti, both at the University of Chicago, found that housing supply constraints in the USA drastically constrained worker and firm mobility. According to their calculations, looking at 220 US metropolitan areas from 1964-2009 US GDP, if authorities were able to reduce constraints on housing supply only to the level of the median city, GDP could be 9.5% higher. Output, wages, and living standards could jump around a tenth, that is, if they could only bring everyone’s housing supply restrictions to the middle city. Gains would be substantially higher if every city allowed building like the most liberal city.



The restrictions on UK housing supply are substantially tighter than the US median, especially in fast-growing cities like Manchester, Oxford, Cambridge and London. The US, for example, does not have anything as like as restrictive a policy on outward growth as the green belt. Most US cities (except Washington D.C.) do not have height restrictions anything like as extensive of those on certain viewlines in London. And US cities do not require all new buildings to adhere to such stringent light, highway, and access regulations. What’s more, the UK is a highly unequal country; the difference between its highest- and lowest-productivity areas is bigger even than famously divided Italy and post-reunification Germany.



Thus, it seems clear that liberalising supply in the UK could bring gains at least as large as those available in the USA. They would accrue only over time, and they would be one-off—they wouldn’t permanently increase the growth rate, but would instead increase the level of GDP (and GDP per capita) for all time. But the gains would still be incredibly large compared to most policy options, and would be very tangible and noticeable to any observer.



To a newspaper or tourist or Londoner the change would manifest itself as a huge construction boom—housing and commercial building starts at levels not seen since the 1920s. This would start slowly, as firms built up capacity, but rapidly speed up. Rent growth would stall, then rents would begin to fall. The investment component of house prices would fall immediately, accounting for the large increase in housing supply. Populations and densities would grow rapidly in economically dynamic cities, making mass transport more efficient and viable across the cities, not to mention all other sorts of businesses: cafés, shops, restaurants, pubs, clubs, bars and service industries. There would be income effects across the spectrum.



Loosening housing supply could be done in three main ways: type, location, and height.

The London code, and other regulatory restrictions on building designs, could be loosened to allow more popular ways of building densely (like the terraces of Islington, Pimlico, Kensington, Chelsea and parts of Brixton).

Some areas of the Green Belt could be opened for construction—perhaps the 3.7% of the London Green Belt that’s within 10 minutes walk of existing transport infrastructure. This could be built densely in a popular way, rather than purely being made up of executive detached houses.

And certain areas of London—clusters, like the planned cluster around the American Embassy at Nine Elms/Vauxhall—could allow higher buildings.

On top of that, there could be a much easier system for obtaining planning permission to increase the height of existing two or three story buildings to four or five or six storeys. Trillions of property value could be created on top of the £1.7 trillion there already is in London.

The countervailing consideration of congestion is a serious one, and one that should not be ignored. But its costs can be mitigated straightforwardly, since the gains are so large. More bus services, tubes and trains can be run in London; the congestion charge can be hiked to take account of the greater scarcity of the roads. The alternative is essentially a noose around London’s—and other growing cities’—necks, holding their success back.

For more information, see our reports The Green Noose and A Garden of One's Own.