Thursday 25 July 2013

Urban versus rural living

In my post yesterday I talked about the reasons why simplistic comparisons of rural and urban living lead to concepts of a 'rural penalty' that are misleading. Here's a slightly more meaningful thought experiment to get at the differences between rural and urban living. Imagine yourself moving across different areas in Britain. In each area you'll live in roughly the same type of house (number of bedrooms etc) and you'll get paid the wages consistent with your experience, education etc. If you are going to stay living in areas where house prices are high relative to income, you better be getting compensated by some nice local amenities (e.g. pretty countryside, lower crime, etc). If you are going to stay living in areas which aren't very nice (e.g. polluted, run down, etc) you better be compensated by house prices that are low relative to incomes. In other words, the gap between house prices and incomes provides important information on the amenities offered by different locations.

Here's what that gap looks like across different areas of Britain (taken from a 2011 SERC DP). I've coloured the rural areas in green and the urban areas in red:

What you can see from this is that it makes no sense to talk about 'a rural penalty'. There are a group of rural places that are high housing cost, low pay - but these are places we would associate with good amenities (e.g. West Cornwall). There are a group of urban and rural places (in the middle of the picture, below the 45 degree line) that offer higher incomes given the cost of housing. These places generally offer lower amenities (e.g. they are very remote or are old industrial towns). Finally, to the right of the picture there another group of (mostly urban) places where incomes are high, but housing costs are even higher. These places must offer some kind of amenities (e.g. good restaurants, easy access to good jobs and schools) to offset these low real wages. If they didn't, why would so many people live there?

The dashed line summarises the trade-off that we face in Britain as we move from low to high wage places. We can have high amenities, expensive houses and low income. We can have poorer amenities, cheaper houses and higher incomes. Or we can have high amenities, the highest incomes but the most expensive houses. Take your pick.

Wednesday 24 July 2013

Country Dwellers and the 'Rural Penalty'

Lots of coverage today for the Commons Rural Affairs Committee report suggesting that country dwellers pay a rural penalty in access to services.

I accept that this is true for some services (e.g. broadband). However, the same report also tells us that many rural areas have very high house prices relative to income. This tells us that the countryside must provide a lot of amenities that make people willing to accept low real wages (as measured by the difference between house prices and incomes). In short, the data tell us that overall the countryside is a pretty nice place to live. I'm not sure in what sense this constitutes a rural penalty.

Of course, this is not to deny the fact that the countryside may not be such a nice place to live if you are poor. But then that's also true of most of our cities. What this teaches us is that, once again, simple comparisons between urban and rural areas are misleading and fairly pointless. We need to focus on individuals and families and understand the implications for different groups of different levels of public service provision.

[Related posts: Rural Broadband; Rural Cost of Living; Rural Housing]


Friday 19 July 2013

Economic Impact of the Olympics

The government has announced a £9.9bn boost to the economy as a result of the Olympic Games.

The 'detailed' UKTI report on which these numbers are based suggests this breaks down to include £5.9bn of additional overseas sales and a £2.5bn boost in inward investment. Unfortunately, it provides no information on how these figures are calculated. It is certainly not possible to figure out whether they are in any sense additional (i.e. would not have happened if the games had not taken place).

One thing we can do, to start to figure this out is to look what happened to the overall balance of UK trade in that period:

To my eyes, there is little evidence of a trend change around the time of the Olympics (individual components don't look much different as you can see from the original report).

In short, you should take these numbers with a pinch of salt. If anyone knows of more rigorous analysis I'd be happy to receive a pointer.

Wednesday 3 July 2013

Mandelson and HS2

Three things I found particularly interesting about Peter Mandelson's conversion on HS2
  1. He's changed his mind.
  2. His description about how and why Labour decided to support the project (costs far in the future and we get to announce a big scheme) - very depressing for those of us who favour evidence based policy making
  3. The fact that he highlights the opportunity cost of the spending and the uncertainty over costs and benefits, including the impact on the North-South divide. Precisely (I won't repeat the arguments here - you can follow the links)
One thing on opportunity costs: Every time I ask someone from 'the north' whether they would rather have, say, £5bn spent in each of 8 cities outside of London or one HS2 line they (nearly) always prefer the former to the latter. Unfortunately, they don't think the money would be invested if HS2 scheme abolished so they continue to support the scheme even though they don't believe it represents good value for money. Again, very depressing.

Anyhow, let's hope that Mandelson's intervention the thin end of a very big wedge. We need a much more sensible debate on whether HS2 is the right way to spend money.