Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham.

The fact that Britain is in the grip of a housing crisis will not be news to anyone. But small-c conservatives often struggle to reconcile their values with the need for liberalisation in the planning system. Can the two co-exist?

The reasons to tackle the housing crisis are numerous and simple.

Housebuilding and the resulting lower prices will make it easier for people to move to areas with higher paying jobs and businesses will benefit from lower property prices, increasing productivity.

The housing benefit bill – footed of course by taxpayers – will reduce substantially.

Homelessness increasingly results from an inability of people to afford rents. Until a few years ago, the vast majority of homelessness resulted from complex combinations of mental ill health, family breakdown, and substance abuse: this is no longer the case.

Politically, surely the Conservative Party cannot expect young people to support capitalism if they have no capital. Home ownership amongst 25-34 year olds has more than halved in the last two decades: for one of those two decades, we have had a Conservative-led government.

It is important for one red herring in this debate to be killed off instantly. It is often argued that more housebuilding will not solve the problem because the new houses will not be “affordable”. The fact that new houses tend not to be “affordable” to new buyers is a symptom of the problem we face and not a cause. If you imagine restricting beer production to such a level that the price was £7 a pint, loosening those restrictions might reduce the price to £6.90 a pint. The new pints would not be affordable to the less well-off. We would need to loosen restrictions to such a point that prices fell much further before beer would become affordable to all. We need to loosen restrictions on housebuilding so that houses become affordable again.

But therein lies the problem for some traditional voters. Whilst the uplift in land values from building new houses on agricultural land is enormous, new houses come with costs for existing homeowners in the form of infrastructure provided by local authorities, higher demand for GPs and schools and, crucially, the loss of environmental amenities.

Liam Halligan has proposed addressing these problems by sharing the uplift in land value from granting planning permission between the local authority and the owner of the land. The cost of this would ultimately be borne by the landowner and not the builder. This would give local authorities an incentive to grant planning permission. However, this system would not create any particular incentive to provide the things that local people wanted and may simply provide a revenue stream for local bureaucracies.

Such a policy would be an improvement on the status quo, but there is an alternative approach which is both more conservative in the traditional sense and more free-market orientated.

Why not allow developers to negotiate with communities at very local level to provide compensation directly to the community? This would set in place a constructive dynamic. If the houses are beautiful, the local representatives would demand less compensation. A whole range of possibilities could find their way into the negotiations: roads could be improved; in some areas of the country railways could be restored; environmental improvements could be made; and there could, indeed, be cash compensation for those most directly affected. Negotiations could be with villages, parishes or town councils or local housing developments.

It might be asked whether the local residents would not just gobble up all the planning gain which would effectively taking away the value of the land from the person who owns it. This won’t happen. Only 1.4 per cent of Britain is built on, so developers would have options. They could weigh up the cost of development, including the costs demanded by local residents, with the profits from development in different locations. We would get better development and also development where there were the fewest objections.

This approach might well lead to a new focus on promoting desirable environmental outcomes. Developers could, for example, offer to create nature reserves protected by trust funds and green pathways for nature as part of the compensation package. Even a badly designed housing development is better for nature than most farmland. A major study conducted by Dr. Ken Williams of Sheffield University nine years ago found that a typical garden contains thousands of worms, invertebrates, spiders, and around 250 different varieties of plants. By contrast, farms often contain just one plant (wheat, corn or maize) pollinated by the wind. Recent research on hedgehog proliferation undertaken by Nottingham Trent and Reading Universities suggests that gardens in urban areas are becoming increasingly important as the rural environment becomes more ecologically sterile.

The downside of this approach is that it might be more complex than Halligan’s proposal. It might work better on paper than in practice. In that case, why not give it a go? Test it out. We could ask a couple of counties, such as Surrey and Sussex, to try out the approach over five years and see what the results were.

This approach involves genuine localisation and constructive negotiated engagement between localities and developers. It should be complemented by other localisation measures. In particular, we should radically decentralise the tax base. Currently, the addition of more local people brings costs without revenues. Related to this we should shift the burden of property tax from taxes on transactions to taxes on property users and residents (without increasing the overall tax burden) with these revenue streams being set by and belonging to local government.

This would take us closer to tax systems that exist in most other countries. Together with the other moves described here, that might help move us from the position of being an international outlier when it comes to house prices.