Spatial patterns of development and the British housing market

The government wants 3m houses built by 2020. Economic theorytells us their locations matter for living standards. Economicscannot tell us the optimal locations, but does show that housesare 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 economiespoint to a significant rise in the optimal sizes of some UKcities and that optimal locations have moved from industrial-revolutioncities towards the South-east. As a result, significantly expandingLondon, its commuter satellites, and other high-skill placesin the UK, but particularly in the South-east, is likely togenerate substantial rises in wages and living standards. Inthese places the planning system dramatically constrains theeconomy from responding with nineteenth-century dynamism, whennew economic opportunities led some towns to grow dramatically.