Continuing Ben Jamin's topic from earlier today.
On Planet Faux Lib, a regulatory tax is defined as follows, DCLG pp22-23:
Recent empirical studies that examine the impact of land use controls measure regulatory restrictiveness in either of two ways. The first measure, pioneered by Glaeser et al. (2005a), is the so-called regulatory tax, which is the gap between prices and marginal construction costs. The second measure is an aggregate index of regulatory restrictiveness based on survey data (see e.g., Saks, 2008; Saiz, 2010)...
They find that the regulatory tax exceeds 50 per cent of condominium prices in places such as Manhattan or San Francisco. This suggests that the regulatory tax in these places is the second most important ‘tax’, only topped by the income tax. At the same time, the authors estimate the regulatory tax on housing to be negligible in places such as Detroit, Pittsburgh, Philadelphia, or Houston.
Jolly good so far, I'm down with that.
The difference between prices and construction costs = land value, location value, the value of the planning permission, the site premium, whatever you call it = a privately collected tax.
I emailed back and forth with one of the academics pushing this line:
So we can split location values into two things:
a) Part is down to the location, so values in London higher than Newcastle anyway, and this is not "regulatory tax" in your view
b) Part is down to planning laws (the amount by which the value would fall in the absence of planning), which is a "regulatory tax".
But how does this principle apply to Hyde Park or other parks in London, which are only there because the government says so (let's assume). In other words this is a planning decision, and part of the value of homes near parks in London is down to the park.
Would you consider this element of the value of a home (The Daily Mail says it is £10,000 to £20,000 on the selling price) to fall under part (a) pure location value or part (b) "regulatory tax"?
His answer was perfectly clear: anything which the government does which pushes up values which a sensible person would consider to be A Good Thing, like parks (or by extension, most things the government or society in general provide: roads, schools, police, old age pensions, flood defences, work, shopping and leisure opportunities, pubs and clubs) is NOT a regulatory tax, only the very marginal effect which quantitative planning restrictions has counts as a regulatory tax, which is A Bad Thing.
My view is, if you can't draw a line, don't bother.
Consider:
A new town is planned, and for whatever reason they only have a ten mile by ten mile area to play with. They could choose layout A, fill it uniformly with 600,000 small houses, with narrow awkward roads, no parks, no discernible town centre, no industrial or commercial zones, no school or hospital buildings etc. This is shit town planning and the price of a home there would be pretty low (no jobs, no shops etc).
Or they could choose layout B - zone it into suburban residential areas with a mix of terraced, semi-detached and detached houses houses, out of town industrial areas, inner city shops and offices and blocks of flats, wider trunk roads, interspersed with parks, green areas, rivers, bits of woodland etc. Clearly this is sensible town planning and the value of homes here would be much higher, but because so much space is used for non-residential, there would only be 400,000 or 500,000 homes here.
Does that extra price/value using layout B at least partly count as a regulatory tax? Clearly yes, because there are fewer homes, but how much of it - just the element that is down to there being fewer homes, or also the element that is down to the sensible overall mix?
If they don't mind too awfully, I will assume intellectual coherence on their part and stick with their original definition - any part of the price in excess of construction costs is a privately collected tax, end of, full stop. It does not matter how or why it arises, and the amount which relates to planning restrictions is such a negligibly small part of it that we needn't worry about it overly or even bother to quantify it as a separate element.
