(English) Heritage and Cities

A couple of weeks ago I wrote about the need for new (tall) developments in our more successful cities.

I was reflecting on this issue while reading about the history of London (specifically Peter Ackroyd's entertaining "London: The biography"). Both expansion and redevelopment appear to have been crucial in explaining the continued success of London. When London became increasingly constrained by the physical boundary of the city wall, living conditions deteriorated rapidly (as illustrated in nauseating detail by the recent BBC series on Filthy Cities). Expanding beyond the walls was thus crucial for the continued expansion of London. The parallels with the modern green belt are obvious.

Redevelopment has also been important, perhaps best exemplified by the transformation of the Docklands and Canary Wharf. But London's long history throws up an important tension - how do we balance the needs of the changing city against a desire to preserve the heritage that makes London special?

I don't yet have a good answer, but the more I read of debates around redevelopment in London the more convinced I am that the current system may not provide a satisfactory one. To take just one example Make's proposed redevelopment scheme at Broadgate just received planning permission despite the possibility that English Heritage were about to list (i.e. protect from redevelopment) the entire Broadgate office campus. The new scheme will double the amount of floor space previously provided on this central London site. It's conceivable that London would actually benefit from an even larger new building on the site but the controversy around the development has focused almost exclusively on the aesthetics of the new and existing buildings. If English Heritage had listed the whole campus even this limited increase in central London floor space would have been blocked.

Many economists, this one included, may not have much to contribute on the aesthetic debates (my personal opinion, for what it is worth, is that the scheme will replace one fairly ugly looking set of buildings with a new bigger building that's still pretty ugly). But it does raise the question of the right institutional set up for balancing the need for change against the importance of preservation. The danger of our current set up is that it is unclear whether the constraints imposed on the listing system for buildings achieve this balance. Ed Glaeser suggests imposing a strict limit on the number of buildings that could be protected. Adding a new one would mean removing something else from the list. There are clearly other solutions, but the importance of change and growth in cities suggests this is an area which would benefit from further debate and analysis.

Where to build?

I liked this sequence of maps from Audacity showing land use restrictions in England. The website contains other interesting facts and figures, although I am unconvinced that the solution to our current housing problem lies in forming 250 New Towns. I would rather see the planning system more responsive to price signals, a reform which would tend to favour development near to our (relatively) successful urban areas.

The Campaign for High Speed Rail

David Begg (pro) and Jerry Marshall (anti) discussed high speed rail on the Today programme this morning.

Professor Begg wants to dispel myths about high speed rail - the most significant being that 'Britain is too small for high speed rail'. He suggests that the world's 'most successful' high speed rail line runs between Frankfurt and Koln. This may be true, but as my colleague Gabriel Ahlfeldt points out Frankfurt-Koln cut journey times from 2 hours 15 minutes to 59 minutes which is an order of magnitude greater than the time savings for HS2 to either Birmingham or Manchester.

Professor Begg thinks the costs of HS2 are being overstated by focusing on the total costs ignoring the split between revenues and subsidies (fares reduce costs to the government from 30bn to 17bn). The who pays question is important, but it is still the case that the total cost is 30bn.

These costs need to be compared to benefits. Mr Marshall, thinks that these benefits (estimated at 44bn) are being overstated because they are (partly) calculated by turning time savings on HS2 in to money by 'valuing' the time that people save. Mr Marshall thinks the number used to value the time savings is too high because it assumes people are unproductive on trains. Professor Begg doesn't appear to disagree on this point but he thinks the benefits are understated because the number of passengers will be higher than predicted (arguing that HS2 uses conservative numbers for passenger growth). There are other railway experts, however, that think that HS2 has overstated passenger growth by using more recent number where passenger growth has been large.

Personally, one point in the argument summed up the whole thing to me - Begg's observation that he and Marshall sit at opposite ends of the spectrum on HS2. To my mind, this is precisely the problem. Both the costs and benefits of HS2 are large and uncertain. I prefer instead to focus on the opportunity costs: are there things that we could be doing with 30bn that would yield a higher return than "44bn"? I think the answer is almost certainly - "yes" - in both the area of transport (more intra-city schemes) and more widely. This is why I remain sceptical on HS2.

[Disclosure: I sit on the Analytical Challenge Panel for HS2]

More tall buildings needed?

In his review of Ed Glaeser's book (Triumph of the City), my colleague Olmo Silva draws attention to one of the key policy proposals - build up, not out.

UK policy in this area is mixed. Home ownership favours non-urban living (because private renting of flats eases multi-occupancy problems). Relative to the US, we have abolished mortgage interest deductions for owner occupiers (a plus) but we have many policies that push for greater home ownership (a minus). Congestion charging in London plus high fuel prices tend to push people away from suburbs built around the car towards urban friendly public transport. Public transport spending is higher in the UK than the US, although we are just about to see large falls in expenditure (and a lot of money likely wasted on high speed 2).

Planning policy in emphasising brownfield over greenfield development makes the development that occurs in cities denser, but at the risk of some development occurring away from cities that would otherwise have occurred there. The greenbelt constrains development at the edges of the cities but at the danger of "leapfrogging" resulting in long commutes by rail or car. In terms of building up, London's mayor has just reinforced restrictions on historic sight lines, while London's tallest building (the Shard) took many years to get approval.

Although more pronounced in the US, UK cities still educate a disproportionate number of our poor children. Housing policy (including supply restrictions and the emphasis on mixed use) mean that middle income families increasingly opt for non-urban homes as the only way of avoiding schools that they feel will not adequately provide for their children.

Improving urban policy in the UK will require us to grapple with these difficult issues. Unfortunately, this is likely to prove difficult for all our political parties.

Is the New Homes Bonus working?

A little over a week ago, DCLG announced the first payments under the New Homes Bonus: "Under the first cash payments for the scheme, 326 local authorities will receive a share of £200m for increasing the effective housing stock by almost 150,000 in 2010-11". In contrast, "in 2009 there were just 118,000 completions, the lowest level of house building in peacetime since 1924".

On first impressions this seems like good news. But, sadly, this is yet another of those occasions when first impressions are misleading. It took me a while to delve behind the numbers, but here is my understanding. An increase of 150,000 in the effective housing stocks may sound bigger than 118,000 completions but that first impression is misleading because those two numbers are calculated differently.

In 2010/11 the 150,000 increase in effective housing stock comprised 134,000 net additions and 16,000 empty homes brought back in to use. The government provides net additions data from 2004 onwards. They are calculated slightly differently from the figures used for the New Homes Bonus but the 129k figure for net addition in 2010/11 is close enough to the 134,000 figure reported by DCLG above to suggest the data are broadly comparable. Here is what those data show:
04/05: 186,930
05/06: 198,780
06/07: 207,370
08/09: 166,580
09/10: 128,690

So the 2010/11 figures represent the worst net addition figures for the last five years. I think the government could argue that given the recession things may have been even worse without the New Homes Bonus (although the 08/09 numbers already capture the impact of the recession) and I think it would be reasonable to see what the numbers look like next year. But certainly the picture is much more worrying than misleadingly comparing completions to net additions.

Planning: Localism versus Growth

I see that DCLG has announced the four groups that will provide free advice to communities in drawing up neighbourhood plans.

To my mind the list highlights the unresolved tensions that lie at the heart of the coalition's approach to planning. I would argue that at least three of these organisations (The Prince's Foundation, The Royal Town Planning Institute, and the National Association of Local Councils in partnership with the Campaign to Protect Rural England) do not appropriately recognise the economic issues surrounding constraints on land use. This is a problem because the good things about neighbourhood planning (giving people control over their neighbourhood) also come at a cost (in terms of constraints on development). I assume that advice from organisations that emphasise the former, but downplay the latter, will tend to reinforce the NIMBYist nature of neighbourhood planning.

In turn, NIMBY neighbourhood plans will directly conflict with the government's stated desire to ensure that planning does not act as a barrier to economic development. I am still unclear how the government intends to square this particular circle.

Regional Growth Fund Round 1

The government has announced the first round of projects that will be supported by the Regional Growth Fund. We are told that: "The government will invest £450m RGF support in 50 successful bids to lever in £2.5bn in private sector investment that will create or safeguard over 27,000 direct jobs and close to a further 100,000 indirect jobs."

With the details provided (severely curtailed by confidentiality requirements) it is essentially impossible to provide any analysis of whether it will achieve this on the basis of the list of schemes agreed.

Instead, it's worth thinking about the implied cost effectiveness of these grants. Writing in 2005, SERC affiliate Colin Wren reviewed the available evidence on the impact of Regional Selective Assistance (a competitive scheme for allocating money to firms in depressed areas). The estimated cost per job ranged from £8,000-£21,000 (in 1995 prices). If the RGF of £450m delivers 127,000 additional jobs that suggests a cost per job 'created' by the government of just over £3,500. In short, if these numbers played out, this would be a remarkably effective intervention relative to existing schemes. Of course, there is another more depressing possibility ...

All of this ignores the issue of whether these jobs are truly additional as well as the fact that government funds the RGF through taxes on other firms and consumers or through borrowing (thus "destroying jobs"). In short, for many reasons, governments (and not just this one) find themselves on tricky ground when they try to talk about the way in which government expenditure "creates jobs".

Finally, a little exam question (not to be taken seriously): If the coalition spending plans differ from labour's by £2bn (or £5bn or £40bn - take your pick) how many jobs would spending this through the RGF "create"?

(Planning) Permission Granted

Local planning authorities approve between 82 and 87% of planning applications. Does this tell us anything about whether 'planning red tape holds back development'?

Unfortunately not, because the number of applications submitted is affected by the rules in place. Putting in planning applications costs time and money, so developers only tend to put in applications if they think they have a reasonable chance of succeeding. If relaxing the rules led to more applications then overall development might increase even if there was no change in the approval rate.

Approval rates do matter (because failed applications 'cost' developers and local authorities) but with approval rates so high (they are 87-94% for commercial development) it is the affect of the rules on submission rates that matters most for understanding the impact of planning on development.

Disposable incomes

Interesting figures from Resolution Foundation showing London as the only region where disposable income growth has been positive between 2003 and 2008.

SERC research on nominal wages suggests a lot of this will be compositional (i.e. driven by the fact that professional/managerial workers have done OK and that they are concentrated in London) but the spatial differences still quite striking.

Planning an easy target?

More on the planning debate. A group of academics, planners and community organisers writing in the Guardian last weekend: "As the budget has shown, the planning system is an easy target." I am not so sure. Easy to target, perhaps, but difficult to radically change. As my colleague Paul Cheshire points out: "In Britain the regulatory system is still essentially as constructed by the Town and Country Planning Act in 1947 [...] There have been many modifications since 1947 but the Act established an approach and framework that has not been superseded". The letter writers continue: "There is, however, little evidence to support the claim that reforming it would produce a substantial boost for economic growth. The evidence that does exist is weak, coming almost exclusively from free-market economists." Technically true (in the narrow sense that economists would use the phrase "economic growth") but misleading in the wider context. Planning requires resources to implement, affects the costs of living and directly restricts, and otherwise seeks to influence, the location of economic activity. For all these reasons (and more) planning has economic consequences. These effects are important and should not be lightly dismissed as the wishful thinking of 'free market economists' driven by 'neo-liberal dogma'.