Spatial patterns of development and the British housing market

The government wants 3m houses built by 2020. Economic theory tells us their locations matter for living standards. Economics cannot tell us the optimal locations, but does show that houses are usually socially more valuable in high land-price areas, because additional workers are more productive in such places. Land-price data and evidence on urban agglomeration economies point to a significant rise in the optimal sizes of some UK cities and that optimal locations have moved from industrial-revolution cities towards the South-east. As a result, significantly expanding London, its commuter satellites, and other high-skill places in the UK, but particularly in the South-east, is likely to generate substantial rises in wages and living standards. In these places the planning system dramatically constrains the economy from responding with nineteenth-century dynamism, when new economic opportunities led some towns to grow dramatically.