Unpriced Regulatory Risk and the Competition of Rules: Unconsidered Implications of Land Use Planning

Abstract

This paper argues that over the past 40 years land use regulation has created much of the financial value and, therefore, returns, in real estate in many countries, although most clearly in the UK. The evidence for this claim is best documented in the context of residential property but the circumstantial evidence that, in the UK at least, land use planning has similarly inflated commercial real estate values is powerful. Moreover, because of the wider economic impacts this regulation is increasingly having, there is a significant possibility of future deregulation. This would have a substantial impact on both capital values and rents of all classes of real estate but most especially residential and retail. This constitutes a significant risk for real estate as an asset class and, moreover, it is a risk of which real estate professionals appear unaware and is, therefore, unpriced.