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Perverse outcomes of government intervention |
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Written by Tom Clougherty
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Monday, 09 October 2006 |
A few months ago the FT's Undercover Economist Tim Harford mourned the demolition of his beautiful neighbourhood church in Hackney. The cause of its demise? Discussion of its inclusion in a conservation area.
While this may seem counterintuitive the logic is very simple - it was better for the owners of the church to demolish it now and keep their options open, rather than risk being stuck with land they were forbidden from developing. But had there been no conservation area the church would, in all likelihood, still be standing. Perhaps, Harford conjectures, it would have been used for "fancy apartment conversions." Instead it was razed to the ground and a cheap new building put up in its place.
He goes on to list various similar cases of "pre-emptive development", his point being this: government intervention in the market does not always produce the intended or predicted outcomes. Often such interventions create perverse incentives and achieve precisely the opposite of what was meant. The best solution to this problem is to keep state interference to a minimum. Harford suggests that rather than preserving land or buildings through regulation, Governments should buy it at the market rate:
That sounds expensive, but in fact simply transfers the expense from the property owner to the government that wishes to take away his property rights. It might persuade government to be a little more selective with its regulations.
Indeed.
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