'In other words, abolish much of the planning permission system and allow people to convert, either way as they see fit'
Absolutely not. Most planning law is there to protect towns and villages from the ravages of property developers who, were it not for those laws, would be building eyesores all over the damn place.As a former councillor and chair of planning committee, I agree that planning laws need to be changed as society changes - they need to be flexible but they will still be needed to protect the urban landscape from stupidity and greed.
As far as housing is concerned, many local authorities already allow shops to let out upper floors but obviously only if there is a separate entrance from that of the shop itself. A few local authorities even go as far as cutting business rates for the shop owner if they let to tenants. One of the biggest problems with flats above shops is what to do with the tenants if a shop closes or changes hands. You can't just tell the tenant they have to move out because tenants have legal protections - or would you propose removing those, too?