Urban containment, housing affordability and price stability - irreconcilable goals

The planning goals of urban containment and now densification conceive of houses in terms of physical units and of land ‘supply’ as the area allocated for housing by the planning system; estimates of ‘demand’ are driven by household projections. Prices and price volatility are, however, determined by economic forces and there is a fatal mismatch between the operational concepts of demand and supply in markets and the parallel concepts with which the planning system works. Planning allocates a scarce resource – land – so is fundamentally an economic activity; but its decisions are made independently of price or market information. Moreover the concepts used by the planning systems vary with institutional arrangements and culture. Underlying these fatal clashes is the fact that housing is a complex good with many attributes, each of which is subject to particular supply and demand conditions and that one of the most important attributes of houses is space – both inside and around them. So the more planning systems attempt to densify development or to confine new housing to ‘brownfield’ land, the more inelastic supply of a vital housing attribute is, the more ‘unaffordable’ housing becomes and the more volatile housing markets will be. There are solutions - but none of them comfortable for policy makers.