Thursday 30 June 2011

Business Rate Retention

Nick Clegg's speech on business rate retention suggested that the reforms will not hurt poor councils. This will be true in the short run - because the initial allocations can be made to replicate current funding - but it cannot possibly be true in the long run if retention is to provide incentives to local councils.

Local financing in Britain is incredibly complicated but my understanding of why incentives and level playing fields are incompatible runs roughly as follows. Business rate revenue is currently centralised and then redistributed. HMT will have built assumptions about this stream of revenue in to spending plans. As any growth in business rate revenue now goes to local councils, HMT will either need to cut elements of the central grant or make some items of central expenditure the responsibility of local councils (or both). As this happens, councils who have experienced slow growth in business rates (relative to the average) will be worse off. Countering this would require periodic readjustments to equalise expenditure across local authorities. But these re-adjustments remove the incentive effect. Only if the reform generates a large amount of additional growth in the country as a whole could top-slicing provide additional money to poorer councils while leaving strong(ish) incentives in place. Even those of us who are optimistic that there would be some impact on growth from providing good incentives would be careful about pushing the argument that far.

A final point - the current plans are about business retention rather than allowing flexibility in business rates. My research on the impact of business rates when they were set locally suggests the government may be right to be cautious in this area. By comparing employment over time in firms close to local authority borders with that in neighbouring local authorities we showed that business rates have a negative effect on employment growth by existing firms. We also document wide variations in business rates across neighbouring authorities. Perhaps today's local authority leaders would be more worried about the extent to which they could tax business, but the historical record suggests there are reasons to be careful when it comes to re-localising rates.

Wednesday 29 June 2011

City Life Bad for the Brain?

Research looking at brain activity suggests that brains of city dwellers react differently to those of rural inhabitants when people are subject to stress. The findings were quite widely reported, but reading the paper suggests considerable caution in interpreting the results (as the authors, but not all the reporting, points out).

The problem is one that is familiar to social scientists who are interested in the importance of place effects. Let's imagine that you are trying to study an outcome such as the propensity to drop out of school. There is plenty of evidence that individual ability and family background play a major role in drop-out. What about neighbourhood? The problem, of course, is that people are not randomly assigned to neighbourhoods. So when you observe high drop out rates in a neighbourhood this may be because of something specific to the neighbourhood, or it may be because of the type of families (and hence children) that live there. In the social science literature, researchers have tried to deal with this problem in a number of ways. Some studies look at very large cross sections with lots of information on individual and family background so that they can try to control for other factors. Studies which follow people over time are usually seen as an improvement on these cross-section studies (because they allow researchers to at least control for factors that are fixed over time). Even better are situations which might be viewed as quasi experiments where something - e.g. bombing in the second world war - has affected neighbourhood composition for reasons that are nothing to do with choices by today's residents. Finally, there is the "gold standard" of randomly assigning people to neighbourhoods - an approach taken by the Moving To Opportunity programme in the US.

The difference between these approaches can matter a lot in practice. In SERC research on wage differences, controlling for observable characteristics of individuals substantially reduces estimates of the effect on wages of living in big cities. Controlling for unobserved individual characteristics reduces the effects yet further. Taken together, control for individual characteristics explains at least half, if not more, of the difference in wages between UK towns. To take another example, in earlier research looking at obesity and urban sprawl we found that any positive relationship disappeared when we followed a large sample of individuals across time.

Which brings us back to the brains of city dwellers. Because MRI scans are costly to administer, sample sizes in this research are necessarily small - 32 people in the case of this most recent study. This makes it very hard to attribute any observed differences to a causal effect of urbanicity per se, rather than to the sorting of individuals with different characteristics across rural and urban places. It does seem slightly ironic that just as the social sciences have moved towards studying individuals subject to random placement (such as in MTO), neuroscience studies are forced to move in the opposite direction (controlling for observable characteristics in small samples of non-randomly selected individuals).

Tuesday 28 June 2011

Investing in London's Affordable Housing

An interesting report from LSE London argues that the government should invest more heavily in affordable housing in London. [Disclosure: I am affiliated with LSE London]. It justifies this conclusion on the basis of need (crowding and rent-to-income ratios are higher than in other parts of the country), value for money (costs are higher, but land used more intensively and private sector leverage higher) and housing numbers (the government will not reach its affordable housing number target otherwise).

There are a couple of striking differences here with the message I took from Steve Nickell's LSE lecture on housing and immigration. First, Nickell argued that reducing supply constraints at the top of the housing market would be the cheapest way for government to drive down prices across the market (including for smaller houses and flats). Second, Nickell thinks that strong incentives for local government are the key to achieving these increases in supply.

In part, I think these differences come from different underlying assumptions about equality and access to housing. Welcoming the report, Stephen Howlett, chief executive of London housing association Peabody noted: "that while G15 associations are trying to make the most of the new system, it doesn't enable them to provide affordable housing for larger families particularly in central London". I can't speak for Steve Nickell, but personally I am pretty sure that this should not be a priority for affordable housing investment. Most professionals cannot afford large family homes in central London so I see little to be gained by trying to address that problem via affordable housing investment.

What about the issue of direct grants versus local incentives? Here, I think there are two interpretations. Taken narrowly, LSE London are calling for a focus of existing funding allocation in London. That is, given that we are going to spend the money on affordable housing, we may as well spend it in the place where it is most needed and provides most value. More pessimistically, however, it may be that the authors feel that the incentives simply will not be large enough and that direct subsidies will remain necessary.

Given that I have highlighted the disagreements, let me end by focusing on an important point of consensus. Whether using subsidies or incentives (and subject to the usual caveat on externalities) both Nickell's lecture and the LSE London report agree that policy should encourage house building in places with high house prices.

Monday 27 June 2011

Moving the Poor out of London

In an article in the Evening Standard, Ben Rogers (who directs the new Centre for London) argues that moving the poor our of London will not do much to help address poverty.

I am sure he is right but, as the article also acknowledges, allowing them to stay put doesn't do much to help address their problems either. If you want to read more on the evidence, take a look at our SERC policy paper on the effects of mixed communities. That paper also talks about some of the benefits of segregation that Ben Rogers refers to in his piece. You can read about a more trivial example here.

On the related issue of housing benefit reform, seven months ago I published my list of open questions about the impacts. While I think we are slightly further along in terms of knowing how many people might be directly affected, I think many of the other questions remain unanswered.

Friday 24 June 2011

Localism and Housing Supply

I wrote recently about unresolved conflicts in the government's approach to planning, economic growth and the natural environment.

One of those conflicts involved the tradeoff between localism and growth in terms of the supply of housing (to recap: localism may encourage NIMBYs, while incentives to local authorities try to encourage growth). According to the Guardian, research by BNP Paribas suggests that the NIMBYs are winning and that localism may make housing shortages worse. Looking at target figures, the research finds that half of local authorities have announced they are sticking to original targets, 12% cutting and only 2% increasing. The average change is a cut in target of 20.6%.

It is, of course, possible that the authorities that are considering increases will announce later. But if that doesn't happen extrapolating this cut across all LAs means 31,000 fewer homes built next year (leaving total targets around 85,000). This is some way short of the 270,000 houses per year that Steve Nickell suggested were needed in his lecture earlier this week.

It's also possible that these figures may improve once the system beds down and the economy improves. But I wouldn't like to bet on that.

Thursday 23 June 2011

London still getting away with it (cont)

A report from the CBI covered in today's Telegraph suggests London firms hiring "as normal".

Last month's London's Economic Outlook from GLA Economics suggests London performed marginally better than the rest of the UK during recession and is now recovering fairly strongly.

Latest figures from the Land Registry on house prices also support this picture. In the year to April 2011 house prices in London rose 5.0% and in the South East by 0.5%. Every other region saw house prices fall in the same period: down a little over 2.5% in the East and West Midlands, down over 4% in Yorkshire and the North West, down over 8% in the North East. The average for England and Wales was a 1.3% fall.

In my January lecture "How did London get away with it?" I explained my thinking on this relatively good performance (both compared to expectations and the rest of the country). There is off course, still time for all of this to change, but the pattern so far remains striking and is unusual relative to the last major recessions in the UK.

Wednesday 22 June 2011

Immigration and the Housing Problem

Steve Nickell gave the final lecture in the CEP 21st birthday lecture series last night looking at the link between immigration and the housing problem.

He started by highlighting the shift in the overall pattern of immigration in the UK from net negative (more people going out than in) to net positive (more in than out). This change is being driven partly by students and partly by flows from the A8 accession countries. These immigrants are spread pretty equally across skill groups (for those of you that follow the cricket - Steve Nickell suggests that in the last decade a majority of English test games have been played with an immigrant as captain).

Economic analysis suggests that these higher immigrant numbers have had little effect on average incomes, although they may have had a small negative effect (about 2-3%) on wages about the bottom of the income distribution. Most of the focus has been on these income effects but, as Steve pointed out last night, the most obvious measurable effect is the associated increase in population.

This brings us to housing because, as frequently discussed in this blog and elsewhere the UK builds very few houses. Steve Nickell suggests that we need to build around 150,000 houses per year to cope with the increase in demand that comes from real income growth and another 120,000 per year to cope with changing patterns of household formation. These kind of rates would be needed for price houses to real income ratios to stabilise.

The lecture was delibrately vague on how we might achieve this increase - some combination of "financial incentives" and "local authority ownership and sale of more land". Nickell was pessimistic about localism for reasons I have discussed before. He also chose to be fairly non-commital on what his analysis suggested for overall immigration numbers, instead sticking to his main point that it would be unfair to blame immigration when the system is incapable of delivering sufficient housing to cover domestic demand.

Personally, I think the link from immigration to the housing problem does raise issues for those of us who believe the country should be reasonably liberal in terms of immigration policy. Overall, in terms of measurable (economic) costs and benefits the evidence suggests no effect on average wages, negative effects for the worst paid and increased house prices (with all the associated affordability problems). This leaves one pushing non-economic points (and here there are clearly costs as well as benefits) or looking to areas of the economy where we haven't been able to carefully measure the positive impacts. The most obvious area for further analysis is in terms of the dynamic effects coming from the impact of immigration on innovation. However, recent SERC evidence on immigration and innovation in cities doesn't suggest these effects are that strong (see SERC DPs 0068 and 0069).

Overall, I came away a little depressed. I suspect immigration will continue to be blamed for problems in the housing markets. I am also in agreement with Steve Nickell's assessment that we are still some way from the tipping point where politicians are able and willing to do something about the underlying problems.

[Video, podcast etc of the lecture should be available shortly]

Tuesday 21 June 2011

The Bank of Mum and Dad

DCLG has announced details of its FirstBuy scheme to help first time buyers in the housing market.

The scheme will provide first time buyers with a 5% deposit a 20% loan allowing them to get a better mortgage deal to cover the remaining 75%. Loans will be repaid on resale of the property (with interest payable on the loans after 5 years).

I understand the politics of this (see the Mirror and Telegraph) and I can see that it acts as an implicit stimulus to the home builders (it only applies to new homes). That said, it will do nothing to help with the affordability problem. Government subsidies to increase demand for housing increase house prices rather than decrease them. This makes housing less, not more affordable. This policy benefits developers, will benefit the 10,000 people that take part in the scheme and will shunt the affordability problem on to some other group of poorer households who are not covered by the scheme.

The only silver lining appears to be that FirstBuy replaces the HomeBuy scheme that provided more generous help with deposits.

Monday 20 June 2011

Local Procurement and Jobs for Local People

Last week a DCLG report claimed that better procurement policies could save Local Authorities money (£450 per household we are told). The recommendations focus on making better use of data, bulk buying and shopping around.

This focus on costs will disappoint those who think that local authorities should be using local procurement to help protect local jobs. I do not share this disappointment because, while I don't have any evidence with which to assess the value of savings suggested by the report, I think the focus on costs is right for reasons that I laid out late last year.

Friday 17 June 2011

Sustainable Development and Local Plans

The UK government is to introduce a presumption in favour of sustainable development in to the planning system. In practice, what this means is that there will be a presumption in favour of development providing that it is consistent with a Local Plan.

This will encourage councils to keep their local plans updated and will give developers certainty. This is a good thing. Some have pointed out that this doesn't get us very far in terms of defining sustainable development. Whether or not this leads to more or less development and whether this new development is in any sense sustainable will then, of course, depend on the local plan.

Some commentators are reading these changes as a green light for development. In practice unresolved tensions at the heart of the government's approach to planning, nature and economic growth mean it is difficult to say which way the balance will swing.

Thursday 16 June 2011

High Flying Cities

According to the Financial Times, there is a growing gap between the UK's successful and unsuccessful cities. This raises issues for the coalition and their objective to 'make sure growth is balanced right across the country'.

Most work on urban and regional economics suggests that this objective is simply unachievable. One model of economic growth (the so called Solow model) does predict convergence across places, but most other research (including the endogenous growth, urban and new economic geography literatures) predict that growth will be lumpy.

When SERC was launched in 2008 our first policy paper highlighted the uneven fortunes of UK cities and explained why differences were likely to strengthen. It argued that the government needed to embrace this uneveness and put it at the centre of its strategy for achieving more balanced growth across the UK, even if this came at the expense of more unbalanced growth within regions. This would require less 'jam spreading', a concentration on relatively successful cities and the recognition that policy should focus on improving outcomes for people, not specific places. The FT report suggests that the recession has strengthened the case for this less balanced approach to rebalancing.

Wednesday 15 June 2011

Bins, LEPs, Mayors and Growth

Writing yesterday about calls to devolve more powers to Mayors with the aim of boosting city growth I pointed out that "passing powers to city leaders limits central government’s ability to affect urban economic performance. The coalition’s approach to this is to combine decentralisation with incentives for growth."

One story yesterday - concerning weekly bin collections - highlights the fact that both the government and public are going to struggle with this way of dealing with the localism agenda. Waste generate lots of externalities (energy in production of packaging, what to do with the waste). Because some of these externalities (global warming, landfill) extend beyond local boundaries, the policy environment imposes constraints on local policies e.g. taxes on land fill and targets for recycling. Conditional on these constraints local councils are then free to do what they want in terms of bin collections. So the constraints allow them freedom to choose but within a context where there choices are made to take in to account the wider impact (economists often talk of 'internalising the externalities'. This is how much localism will need to work in practice, but it causes problems when central government doesn't like the decisions that local authorities reach. Rather than imposing solutions, however, the appropriate response is to change the constraints (which the UK government is looking to do in terms of food collection through national subsidy).

This reminds me of a different debate, around the formation of LEPs, that ties in with yesterday's debate about mayors and growth. I am broadly supportive of the move from RDAs to LEPs, mostly because I think the latter constitute a better level at which to formulate policy. My main reason for thinking this is because LEP boundaries can more closely match local economies which I think should lead to better policy making. This is why I would have been keen for the government to set a framework for LEPs that gave incentives to local authorities to create sensible LEPs. Instead, the government allowed free reign, but with BIS saying yes or no to the proposed partnerships. Of course, these two process may achieve roughly the same outcome but economists still tend to argue that incentives/constraints plus free choice leads to better outcomes than free choice but with central government veto.

Tuesday 14 June 2011

Would Elected Mayors Help Drive Growth?

Centre for Cities and the Institute for Government launch a report today calling for more powers to be devolved to elected mayors to overcome some of the barriers to growth that cities face. They are also suggesting that cities should be allowed to bid for metro mayors with additional powers.

Decentralising fiscal and political powers from central to local government is a key element of the ‘localism’ agenda and I think these proposals for mayors make sense within that context. That said, I am much less confident than these two organisations that this will actually make much difference in terms of economic growth.

Why? Because there is no clear evidence of a direct link between decentralisation to local government and improved economic outcomes, nor between decentralisation and rebalancing in the sense of a narrowing of spatial disparities (SERC policy paper 5) Theoretically, decentralisation may benefit local wellbeing or economic growth – for example, by encouraging policy innovation, economies of scope or the tailoring of policy to needs. But more evidence is needed on which, if any, of these channels will have an impact on growth. So my support for greater powers for mayors is essentially philosophical - in the absence of strong evidence either way, why not try more devolved powers?

In contrast, there is a broad consensus on the second proposition in the report - if economic policy is devolved this should be to functional economic areas, that is to metro-mayors.

Two final notes of caution. First, I think the link from devolved powers to economic performance, if there is such a link, is likely to be weaker for cities that are already poorly performing (something which is true for a number of cities applying for powers). Many declining US cities (Detroit, New Orleans) have strong city mayors who have proved incapable of reversing the declines suffered by their cities.

Second, passing powers to city leaders limits central government’s ability to affect urban economic performance. The coalition’s approach to this is to combine decentralisation with incentives for growth. Fundamentally, if we want successful cities to grow the balance between decentralisation and pro-growth incentives has to be right. This raises crucial questions for central government about the overall institutional framework within which powers are devolved. Planning, Housing, Local Government Finance, Education, Innovation Policy and Transport are at least six areas where I am not sure that policy yet has the right balance. You can read why that may be the casein the latest SERC policy note.

Monday 13 June 2011

Encouraging Home Ownership

According to the Observer, a Smith Institute report to be published this week will predict the number of people who own homes will fall by almost two million by the middle of the next decade.

In terms of policy responses, the report will say: "It may even be that the coalition will wish to consider some tax concessions along the lines of mortgage interest tax relief [Miras, abolished for principal residences in 2000] to encourage access to home ownership"

Unfortunately, evidence from the US produced by Christian Hilber and Tracy Turner (SERC discussion paper 55) suggests that there is only a very weak link between mortgage interest relief and home ownership. In fact, in tightly regulated housing markets mortgage interest deduction has a negative effect on home ownership because the price effect (through increased demand) more than offsets the income effect (from the tax deduction). In less regulated markets, mortgage interest deduction does have a positive effect on home ownership rates, but only for higher income groups.

As the UK market is very highly regulated this urges considerable caution in using mortgage interest tax relief as a means to increase home ownership. Reintroducing Miras could prove to be a costly and ineffective intervention.

Friday 10 June 2011

Build Absolute Nothing Anywhere Near Anybody

Writing in the Times, David Aaronovitch comments on the BBC2 programme on wind farms highlighting the huge delay anti-turbine campaigners have managed to impose on one small project.

This suggests another planning versus growth conflict to add to the list I provided earlier in the week: Specifically, the conflict between national infrastructure projects and localism

Mr Aarnovitch highlights the NIMBY nature of the objections. I sometimes wonder if this is a label that people are increasingly comfortable being branded with. After all, it's perfectly rational to object to things that have a negative direct impact on your house price while not generating (sic) any direct benefits. Indeed, the debate around the National Ecosystem Assessment makes me wonder whether it's time to encourage more active use of the BANANAs acronym to label those who consistently oppose so much new development.

Thursday 9 June 2011

Can local authorities close the gap between rich and poor?

Islington Council 'Fairness Commission' is due to report today on its proposals for narrowing income inequality within the borough. This raises the question of the extent to which any one local area can address inequality. Many urban economists are sceptical.

Here is Wallace Oates (who wrote a number of classic papers in the area) quoting Edwin Cannan: "Measures adopted to produce greater equality are, however, exceedingly unsuitable for local authorities. The smaller the locality the more capricious and ineffectual are likely to be any efforts it may make to carry out such a policy. It seems clearly desirable that all such measures should be applied to the largest possible area, and that subordinate authorities should be left to act, like the individual, from motives of selfinterest."

The underlying problem relates to the mobility of households. Localities which are generous to the poor tend to attract poor families. Assuming the expenditure is funded by local taxation, richer families tend to move in the opposite direction, to less generous localities. This leaves the local poor having to pay higher taxes to help the local poor. Because mobility generates an externality across boroughs there are also incentives to underfund provision. As Oates points out the English Poor Laws dealt with the problem of migration by abolishing it: 'the responsibility of each parish [was] to provide relief for its own, but only its own, poor.'

In short, either because of the limits to effectiveness, or because of the tendency for underprovision, most urban economists tend to favour national policies as the appropriate mechanism for addressing individual inequalities. Local policies are a distinct second best. A lesson Islington Council may be about to learn the hard way.

Wednesday 8 June 2011

Plannning, Nature and Growth: Unresolved Conflicts

The debates surrounding the Environment White Paper (and the National Ecosystem Assessment) highlight unresolved conflicts in the government's approach to planning, nature and economic growth.

Local Green Areas and Nature Improvement Areas look set to add to the large amount of land that is already protected from development. At the same time planning reform "will guide development to the best locations", which should (but probably won't) lead to development on currently protected land.

Through neighbourhood plans, local communities will be given more power to say no to development but local authorities will be provided greater financial incentives to say yes to development.

The government wants economic growth and is worried about the cost of living, but it doesn't want more out of town supermarkets and clone towns (even if these may deliver growth and lower costs of living).

It's considered risky to suggest that we need a period of house price stability and very dangerous to suggest they should fall but the government worries about 'generation rent' and the fact that young people are unable to get their foot on the housing ladder.

The land planning system sits at the heart of all these controversies (and more besides). Uncertainty isn't great for developers, but it is increasingly clear that serious debate is needed if we are to reform a system that clearly isn't working.

Tuesday 7 June 2011

The True Value of Nature

George Monbiot doesn't like the National Ecosystem Assessment, launched last week, which tries to assess the economic value of nature. He thinks that placing a value on nature will allow big business to override the planning system. For many reasons, I think this is unlikely to happen.

More generally, Mr Monbiot is not a fan of cost-benefit analysis, its 'arbitrary' assumptions and it's way of balancing costs and benefits to try and reach a decision. I disagree, for at least three reasons:

a) The prices used in these exercises are not 'arbitrary'. For example, in the NEA, there at least some of these prices which have been estimated from what people pay to live amongst, or close to natural amenities. The same is the case for transport. You might argue that these figures could be improved (I would agree) but it's unfair to suggest that they are completely arbitrary.

b) The point of valuing these assets is presumably to make it more likely that environmentally destructive road, rail and other development schemes don’t go ahead, i.e. that it is not so easy to show that “multibillion pound road schemes which cut two minutes off your journey are deemed to offer value for money”

c) More generally the (well worn) points about CBA - that some things are unquantifiable or ‘cannot be swapped for money’ - begs the question of how Mr Monbiot thinks we should weigh up the claims of competing interests on resources? Should we just take his word for it?

So, CBA may not be perfect, but it is still a highly useful input in to the decision making process.

Monday 6 June 2011

(Super) City Rankings

I was away at the end of last week so I missed the HSBC report on super cities that will lead the UK manufacturing resurgence: Bristol and Glasgow, Newcastle, London, Leeds, Brighton and Liverpool.

I don't think these kind of rankings are very useful for policy. I may be cynical, but I think the rule when constructing these things is to pick a few places that are safe(ish) bets (London and Bristol on the basis of current performance, Leeds and Brighton on the basis of trends) then a couple of random(ish) ones to generate interest (Liverpool and Newcastle).

I assume a process like this lead to McKinsey Global Institute predicting Edinburgh, Durham and Belfast as having higher GDP per capita than New York and London by 2025 (see table 1 in the executive summary).

As for policy, unless large inflexible investments have to be made, then I think it is far better to remain spatially and sectorially neutral.

Friday 3 June 2011

On the Origins of Land Use Regulations

Earlier this week the BBC reported on findings from a Halifax poll suggesting that first time buyers fear being locked out of the housing market.

The underlying problem is that house prices are high relative to incomes. In turn, restrictions on supply play a large role in driving those higher house prices. While the consequences of land use restrictions are increasingly understood (at least by academics!) there has been surprisingly little research done on the causes, or origins, of these restrictions. Why are they so popular?

The standard answer is that the benefits of restricting development are concentrated, while the benefits of allowing it are dispersed.

The IEA argue that this is not enough - and that we need to recognise that people play an emotional cost of rejecting a cherished belief, if we want to understand why voters inflict unnecessarily high housing costs upon each other.

My colleagues Christian Hilber and Frederic Robert-Nicoud provide an alternative explanation, which they refer to as the influential landowner hypothesis [pdf]. As they put it:

"We start from the observation that one of the most salient economic effects of land use regulations is to increase the cost of future developments. As a result, the most important economic conflict that arises in this context puts the owners of developed land (who have the most to gain from regulations) against the owners of undeveloped land (who have the most to lose from them). As the most obvious winners and losers, these two groups have strong incentives to influence the regulatory environment."

Using data from the US, they find strong support for this hypothesis. The data provide weak or no support for alternative hypotheses whereby regulations reflect the wishes of the majority of households, or efficiency motives.

As the UK government seeks to incentivise local councils to allow more development, this raises interesting questions about what will happen when local communities are given more say in the planning process.

Thursday 2 June 2011

Nature and planning

Lots of coverage this morning for the National Ecosystem Assessment which tries to assess the economic value of nature. We are told that ministers will use the assessment to help reshape planning policy. In principle, this is a good thing. Whether it is in practice depends, as usual, on the details.

The first issue concerns the accuracy of the valuations. I haven't had a chance to read the 2000 page report yet. Excuses: website crashed, length - not necessarily in that order. [Disclosure: Researchers at SERC contributed to the report, so I am familiar with some of the calculations.]

In the absence of a more thorough assessment, let's assume that the underlying numbers are reasonably accurate. The next question is how to embed them in to the planning system. If memory serves, some first steps on this path by DCLG or its predecessor managed to take the underlying numbers and calculate a value of green belt land that was infinite (by using a social discount factor that was negative in a net present calculation). In short, make the "right" assumptions and you can use these numbers to justify the ban on building on greenbelt land, rather than improving the functioning of the planning system.

Assuming that is not the current government's objective, how could these prices be used to improve the planning process? They are supposed to capture the value of natural amenities that would be ignored by developers (i.e. externalities). There is a possibility of double counting here because, as SERC research shows many of these amenities will be capitalised in to house prices and so will not ignored by developers. Assuming we can isolate the genuine externalities then we should abolish all green belt and other restrictions and instead base planning decisions on land price signals incorporating these externalities.

Would this lead to more, or less, building on current green belt (and other protected land)? According to the Valuation Office Agency Property Market Report (Jan 2010) agricultural land prices varied from about £21k per ha around Oxfordshire to £16k per ha around Suffolk. 'Suburban' land for housing varied from around £4,000,000 per ha at edge of Oxford to £1,700,000 at edge of Norwich; £2,900,000 at edge of Cambridge. Unless the externalities associated with one hectare of greenbelt land near Oxford are valued at £3,988,000 then we should be building on it (or possibly converting it to some other use with externalities worth more than £3,998,000). I have always struggled to imagine what these externalities might be that could possibly total £4m per hectare for agricultural land. Now the National Ecosystem Assessment gives us the chance to answer that question.

Of course, it would be a brave government that took these calculations of externalities and used them to justify more building on some previously protected land ...

[If you are interested in the way amenities and other things get capitalised in to house prices see SERC research on football stadiums, transport improvements, and central government grants]

Wednesday 1 June 2011

High Speed 2: Latest opinion poll reveals ...

The UK Department for Transport have been asking people about high speed rail. What does this tell us about whether or not the scheme is a good idea?

According to the Yes to High Speed campaign the poll tells us: "the majority of the respondents were in favour of a high-speed rail system." From the survey: 47% of British adults were in favor, 9% against. So, that sounds like resounding support.

Unfortunately, they choose not to highlight the fact that half of respondents (50%) agreed that 'High Speed Rail is £30bn we cannot afford' while only a quarter disagreed with this statement.

So, the public are in favour of high speed rail, providing that they don't have to pay for it. I am not sure that this gets us much further one way or the other.

The poll is also interesting on the benefits. 56% of adults agreed that High Speed Rail would be better for the environment, while 63% thought it would create jobs and growth. As I have said before, the evidence is fairly weak on both these points. This suggests that most people don't know much about the scheme (which turns out to be true - 42% say they know little or not very much about the scheme, while 47% say they know nothing).

In short, I think this poll tells us that people are willing to express opinions about things on which they know very little. I have the same attitude towards my football team, but I understand why the manager may sometimes choose to ignore me.

More seriously, I think the exercise reveals that there is still a big job to do in properly informing the public about the expected costs and benefits of the project.

1. I sit on the HS2 Analytical Challenge Panel
2. I am sceptical about some of the claims being made for HS2: [1], [2], [3]