Response to the Sub-National Review

The government published its response to the public consultation on the SNR earlier this week.

Despite the current economic situation, government still needs to make progress on fundamental questions about the future of urban and regional policy. Indeed, for local policy makers, because there is little they can do that will affect the impact of the economic downturn, it is doubly important not to lose sight of medium to long term issues.

So, then, to the SNR. There is more detail on how the local authority economic assessment duty will be implemented and the form that sub-regional collaborative agreements might take. There's also confirmation of the move to integrated regional strategies. As I have discussed elsewhere, these strategies will need to make a decision on the extent to which efforts to deliver regional growth rely on the spatial concentration of resources as opposed to "jam spreading". Sign off by a "local authority leaders' forum" (the original plan) would tend to favour the latter. In the new proposals, a "local authority leaders' board" will have joint responsibility with the RDAs (with disputes resolved by ministers). This will, in principle, allow more concentration and less jam spreading.

From the view point of achieving regional economic growth, current evidence suggests this may make sense. The problem, of course, is that this reduces democratic legitimacy. In the absence of elected regional bodies, squaring that particular circle will require careful thought about how to provide local authorities with incentives to sign up to integrated strategies that concentrate resources. I have talked about this in the past with relation to housing targets. Successfully agreeing (rather than imposing) integrated regional strategies will require far more work to tackle this difficult issue.

SERC launch

Over the last few days, we've held a series of events in London, Swansea and Newcastle to mark the launch of the Spatial Economics Research Centre.

Professor Ed Glaeser, from Harvard University, gave the inaugural SERC lecture on Our Urban Future. If you missed Ed's fascinating talk you can hear what he had to say by listening to the podcast.

If you want to make sure that you don't miss our events in future, then please sign up to our mailing list.

I'm now off to New York for the 55th Annual North American Meetings of the Regional Science Association International. I'll try to post next week on the most recent research findings from this gathering of some of the world's leading urban and spatial economists.

Greener Homes?

The Environmental Audit Committee has undertaken an environmental analysis of the government's house building plans. They published their report yesterday.

Let me comment on a few of their recommendations. First, they question whether the 3 million housing target is justified given current economic conditions. Note two things (i) this is a target for 2020 - unless the recession is very deep and long you wouldn't expect much to change on that time horizon (ii) recent figures suggest that we are some way from meeting this target.

The credit crunch does raise a question about the timing of house building. The report argues that more should occur after stricter carbon targets are introduced in 2016. This may be sensible, but in the absence of government policy to the contrary (a large social house building programme for example?) it will happen anyhow as the housing market turns down.

Finally, there's the issue of the size of new houses and gardens and where we should build them. I'll deal with the issue of green versus brown field another day when I have taken a closer look at the numbers (my back of the envelope calculation translates CPRE's 36,000 football pitches between now and 2020 in to about 1.5% of green belt land in England; and far under 1% of all undeveloped land). For now, just consider the Committee's suggestion that government should stop trying to address people's aspirational demand for bigger houses and gardens because these don't reflect urgent need. That kind of logic works in a centrally planned economy where government allocates housing to people. However, last time I checked, we still allowed people to buy and sell houses freely (even if they are not choosing to do so). If we don't increase the supply of space as the demand for space rises, then the price of space and thus of housing will rise again once the economy recovers. Cue complaints about housing affordability long after the current problems have been forgotten ...

The geography of recession

Conventional wisdom suggests that recessions tend to spread misery around. If this is true, we might expect the "north-south divide" to narrow over the coming months, particularly if sectors over represented in the south (financial services for example) are especially hard hit.

Is the fact that it's about to get "grim down south" likely to lead to a fundamental shift in the economic geography of the UK (as appears to be suggested by some commentators)? I'd make two points. First, this kind of discussion confuses changes with levels. A couple of quarters of negative growth will certainly be highly unpleasant for large numbers of people. A higher proportion of those directly affected may indeed live in the south. But these kind of changes still wont be enough to eliminate the gap in income levels. You would then need the working of the economy to reinforce these initial changes. But theories of economic geography tell us that it can take very large shocks to fundamentally alter existing geographical differences.

That brings me to my second point. Although there is some academic debate on this, the south was probably unusually hard hit in the early 1990s recession as well. A different shock, may be, but it reminds us that we have been here before and that the south is very capable of bouncing back from recession.

Overall, a fundamental long run shift in the economic geography of the UK is not impossible in response to the credit crunch but it does appear to be unlikely.

Paul Krugman - Nobel Laureate

Paul Krugman has been awarded the 2008 Nobel Prize in Economics "for his analysis of trade patterns and location of economic activity".

Krugman is actually a pretty controversial character in the (small) world of academic economic geography. When he came up with the theory that lead to the "New Economic Geography", he managed effectively to ignore several decades worth of work in geography and to focus on mechanisms that were considered "old hat". Traditional geographers did not like this one bit.

But to many economists, this one included, Krugman's work was a revelation. Relative to much of the existing literature, Krugman started with individual firms and workers (not "regions") as actors. Economic interactions between firms and their consumers (demand linkages) were put at the core of understanding divergent outcomes. As transaction costs fell, relocation of these firms and works could change regional economic environments leading to different development for initially similar regions. Outcomes could be "path dependent" so that history matters and similar changes need not always lead to the same outcomes. And these outcomes could be sub-optimal in terms of terms of both efficiency and outcomes.

Krugman's work gives us all this in elegant mathematical models that increase our fundamental understanding of the forces that shape economic geography. His theories continue to inspire a generation of economists who are interested in understanding these forces. Together with developments in urban economics, Krugman's New Economic Geography revitalized research in to the nature, extent, causes and consequences of spatial disparities.

There is no doubt he will be controversial choice. He has been a vocal critic of Bush. Non-economists don't like him. Even some "purist" economists might have a problem with the decision. But for those of us interested in the application of rigorous economics to real world problems the award is a very welcome one.

Does restricting big-boxes help independent retailers?

It seems obvious that restricting out-of-town big boxes should help central city retailers. So planning guidance that restricts their entry not only protects the green belt but also helps revitalise town centres. And it should also help independent retailers to boot. Right?

As is so often the case, unfortunately, life is not that simple. A fascinating new paper by Raffaella Sadun suggests that in England, restricting out-of-town big boxes can actually hurt independent retailers. Why? Because big chains appear to have substituted out-of-town boxes for smaller stores in city centres that more directly compete with those independent retailers.

Of course, this can't tell us about the overall effects on town centre vitality or on the environment. But it does remind us that the law of unintended consequences means that there is a crucial role for careful research in evaluating these effects. SERC researchers are intending to look at some of these issues in the near future. It will be interesting to see what we find.

House building (again)

A few weeks back, I wrote about the fact that the most recent housebuilding figures didn't bode well for long term affordability. David Orr, the chief executive of the National Housing Federation is set to talk about this today - he suggests that the government target of three million new homes in England by 2020 is "almost impossible" to meet. To help, they want more spending by government and faster planning decisions.

Its difficult to see how either of either of these measures can make a significant difference. £400m pounds from CLG will help pay for 5,500 homes over the next 18 months. Mr Orr is predicting a shortfall of 1.4m homes ...

Faster planning will help to some extent, but not if planners still end up saying no to housing. As I've discussed elsewhere, addressing such anti-house building sentiment will require more imaginative ways to ensure that communities are actually willing to accept new housing.

[PS: The post that I just referred to was concerned with rural housing. One of the issues that always crops up there is the "problem" of second homes. So, I was interested to see that CLG's latest report on Housing in England (published yesterday) had some figures on this. In the last decade, the number of second homes increased by roughly 40,000 to 241,000. While this might cause a problem for a small number of selected rural communities, its hard to see this as a major issue for housing affordability in the UK as a whole.]