This is why UK house prices have gone up faster than anywhere else

They find that house prices in England would have risen by about 100 percentage points fewer, after adjusting for consumer price inflation, from 1974 to 2008, in the absence of regulatory constraints to housebuilding. In other words, they would have shot up from £79,000 to £147,000, instead of £226,000. Another way of putting this is that prices would have been 35pc cheaper.

Had the south-east of England, in practice the most regulated English region, been as liberal as the North East, the least regulated over the past 40 years, house prices would still have been roughly 25pc lower. As it happens, the authors aren’t necessarily advocating deregulation: they are trying to calculate, using sophisticated econometric techniques and a wealth of detailed data, the effect of constraints.

What about the physical restrictions? In a hypothetical world where they could be magicked away, prices would be 15pc today lower than they would otherwise have been. The majority of these constraints can be felt in highly urbanised areas, for obvious reasons: there is not as much space available in city centres and lots in the countryside. Some parts of the country are easier to build on than others.

So the lesson is clear: prices would have risen even had we still been governed by the liberal planning framework of the 1930s, but by much less. The impact of regulations on prices is relatively recent; they started to have an effect by the 1970s and have played a much greater role in the past 20 years.

The paper also reports on other fascinating findings. The estimated “regulatory tax” in the City of Westminster in central London exceeds 800pc of marginal construction costs. Regulatory constraints are very important in the prosperous provincial town of Reading; meanwhile, in Newcastle and Darlington house prices are barely moved by supply constraints.

None of this is rocket science. Prices are determined by supply and demand. People want to live where there are jobs; these days, this means that there is a huge amount of demand in London and its commuter belt. The government says that it wants to move economic activity to the North, and announced its Northern Powerhouse plan yesterday; but these sorts of artificial activity-shifting schemes have a history of failing. House building finally seems to be creeping up, partly as a result of the Coalition’s reforms in the area, but not by enough to make a big difference. House prices will continue to rise - until the next crash, that is.

allister.heath@telegraph.co.uk

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