High Speed Rail

Last week Network Rail made its business case for a new high speed line. Greengauge 21 will follow shortly, while HS2 will report next year.

Here is what I think we will know after these exercises. The direct user benefits (i.e. the benefits to people making journeys) are potentially quite large. Unfortunately, so are the costs. Both costs and benefits are highly uncertain. The wider benefits - e.g. 'regenerating the north' - are even more uncertain. I suspect the only thing we can say with any certainty is that they are likely to be overstated (there's a long history of this in terms of 'transformative' transport schemes).

Two things where we have a bit more certainty. First, the environmental impacts are not large and could well be negative. Most of the journeys on high speed rail will be additional (or transfers from other lines). Extra/faster journeys generally require more energy not less. You get some savings on car trips and air trips (offset if you use freed up slots for other flights; or if you make getting to Heathrow easier and so generate additional numbers on other routes). The overall impact will depend on what you assume about how electricity is generated. Expect to see generous assumptions using average, not marginal, carbon figures. The second certainty is that any new route will not be commercially viable and will need large government subsidies.

A final thought. Congestion charging has fairly certain costs that are outweighed by clear and certain benefits (the social costs of congestion are very high; and it also helps with carbon). Road pricing has more uncertainty over costs but the benefits are also fairly clear. Yet the strong political support from all three parties is for high speed rail not road or congestion charging. Go figure ...

New homes are too small

CABE are talking about new homes. According to a new survey they are too small and CABE are suggesting that it is all the fault of developers: "Housebuilders often protest that people won’t be able to afford houses with more space. In fact, the barrier is the profit margin that publicly limited companies feel obliged to make. By building the smallest homes in Europe, they’re not giving people the choice. Homebuyers deserve well designed homes that allow them to choose how they live."

The solution, according to CABE chief executive Richard Simmons?: "We need local planning authorities to ensure much higher space standards before giving developments the go-ahead"

I am completely baffled by this. We have a planning system that strongly restricts the supply of land for housing (especially in places where people want to live). This drives up land prices - upwards of £8m per hectare in the most popular parts of the South East - which, in turn, tends to reduce the size of houses (because you have to buy the land before you can build on it). Additional land use regulation - in the form of density requirements and brownfield restrictions further compound this effect (the former directly; the latter because remediation costs mean that you need to get a higher return per unit than if you build on greenfield). In other words, our land use planning system unintentionally generates huge incentives to build small houses with small gardens. [i.e. "Rabbit hutches on postage stamps"]

And somehow the solution to this is to have yet another piece of the planning apparatus which refuses planning permission unless developers build houses of a minimum size? It clearly won't solve the problem. But, if even partially implemented, it would presumably mean less houses and higher house prices. Not sure that this will help in meeting government objectives on "affordability" ...

Devolving public expenditure cuts

I see that my colleague Tony Travers, writing with Simon Jenkins, is calling for greater devolution to local authorities as a way of effectively implementing cuts to public expenditure.

They suggest two principles. The first concerns true delegation of responsibility which they argue leads to experimentation at the margin. What they don't point out is that it also leads to greater competition amongst local authorities, something which economists generally argue is a good thing.

The second principle is that devolution must not disadvantage poor areas. They argue that this can be achieved through redistribution of local revenue. Unfortunately, this is a very narrow interpretation of "must not disadvantage poor areas". If, however, you take a broader definition this leads down a long slippery slope to opposing any differences across places because "postcode lotteries" are unfair.

Focusing instead on poor people helps avoid this problem. My local authority might decide to increase local taxes rather than, say, cut funding to my local art gallery. My love of art and my vast disposable income (this is a hypothetical example) mean I can live with this. In the neighbouring authority poorer households decide they would rather forgo the art and prefer to see their taxes cut.

More generally, when expenditure is devolved the overall pattern more closely represents local preferences. In turn, this closer link between preferences and local expenditure increases the incentives of people to live with others who share their preferences. As these preferences are likely highly correlated with income or education we get more segregation. We end up with some local authorities housing mainly poorer households and providing the kind of local services that they want. Other communities are richer and provide more (or maybe less) local services. These differences make all individuals better off, but you might never guess this by looking at the effect on poor areas.

Community Cohesion

CLG has been talking about the economic benefits of community cohesion. It is suggested that new figures show that increasing cohesion by 1 per cent across the country can potentially save up to £530m in reduced crime.

This figure is arrived at by pulling together two numbers. One is on the costs of crime (I haven't looked at this in detail). The other is on the correlation between crime and some measures of cohesion. The correlation comes from data on 20 areas (effectively 40 wards out of England's approximately 8,000). Crucial assumption number one is therefore that these areas are representative. A 0.5% sample is unlikely to achieve this. That aside, the crucial thing is whether or not these numbers capture a causal relationship from cohesion to crime.

Concluding that the relationship was causal would require us to rule out the possibility that the correlation was not just picking up some other characteristics of neighbourhoods that are correlated with both crime and measured cohesion (say, for example, the income level of the neighbourhood). At the very least, we would want to rule out some of the more obvious possibilities. Unfortunately, the original research didn't do this so we have no way of knowing what causes this relationship. Research that is more careful suggests that it is very difficult to attribute any differences in outcomes that we care about to the causal impact of these kind of community variables.

Cohesion is a bit like motherhood and apple pie. What reasonable person could be against it? Spending public money to achieve it may well be a good thing. But, whatever the claim, this research doesn't help improve our understanding of the wider economic benefits of doing so.

Housing Numbers part 3

I see that CLG have announced the short listing for the first round of Kick Start.

At the end of June, the HCA press release around Building Britain's Future said: "Up to £500 million to kickstart stalled housing and regeneration schemes [...] In view of the new funding, and the high level of bids already received, the Agency anticipates taking forward more than £400 million worth of schemes from the initial bidding round"

They certainly seem to have managed to do that as they are now talking about spending £925m on the first round alone. The fact that this is more than the £900m allocated in June is explained by the fact that Kick Start accounts for £156m of the £0.6bn that will be spent in 2011/12 (CLG report the split as £572m / £332m / £156m in each of the next three years).

I think it is fair to say that how all of this is funded is still a little unclear.

Eco Towns

It appears the first eco towns will be announced later today. I have to confess that my reaction is mostly one of indifference (I don't live near one).

It is clear that the scheme as it stands will not make a huge difference to housing supply. Because it doesn't do a lot for housing supply it can't do much for the environment (only a small % of the population will live there). The direct differential benefits (i.e. due to the house itself) of "eco-town-new-build" over "standard-building-regs-new-build" will be positive but not huge. Overall, the new build will only make up a tiny proportion of existing stock. If you want to seriously tackle the carbon footprint of homes you need to tackle problems relating to the latter.

If the savings aren't large on housing, then most of the benefits need to come from transport via changing travel patterns (shorter journeys) and mode choices (fewer cars). At face value it seems like these might be easy to influence, but in practice the relationship between built environment and transport decisions is uncertain on many dimensions.

To get some perspective, new towns accommodate about 2 million people (4% of the population). Are they the "balanced self contained communities" they were planned to be? They are reasonably self-contained in the sense that a lot of people live and work in the town. Of course, this is true of most towns new or not. They may be less geographically self-contained than intended [1]. They also tend to be more auto-orientated [2]. More growth in new towns is likely to reinforce the dependency on auto leaving journey times unchanged [3].

So, overall, a small benefit from housing. Small populations mean any potential benefits from transport are small (and because there is lots of uncertainty there could end up being large costs). The brownfield/greenfield debate is the usual red-herring. Finally, they might act as examples, but for what? The huge number of new towns we are going to build next decade? They are an interesting experiment, but a marginal story compared to the major questions of housing supply and climate change.

[1]: R. Cervero, Urban Studies, 1994
[2]: Those numbers not peer-reviewed
[3]: Titheridge and Hall, Journal of Transport Geography, 2006.

Local homes for local people

The "local homes for local people" debate has reignited as a result of a report for the EHRC.

I can't see mention of this in Building Britain's Future, but here, from Hansard is what Gordon Brown said on 29th June: "[...] we can now also reform social housing allocation, enabling local authorities to give more priority to local people whose names have been on waiting lists for far too long. [...] We want to see a bigger role and responsibility for local authorities to meet housing needs of people in their areas."

John Healey (7th July) is pushing the increased Local Authority autonomy side of this: "In some areas, they may want to give people who have waited the longest preference. In some areas, they may want to give preference to people who have moved to take up work.They may want, in rural areas, to give preference to those with local connections or their preference may be to reduce overcrowding or attract skilled workers"

Personally, I don't like the politics of this. That aside, in terms of equity "local homes for local people" enshrines the right to live where you are born (residency criteria) or where you work (employment criteria). There is a debate to be had about whether these are sufficiently strong rights to weaken those around housing need (the current criteria). In terms of efficiency there is a strong argument that we need more mobility in the social housing sector not less. "In" quickly when people are in trouble and "out" when their long term situation improves. Further, from a spatial perspective, social housing acts as a very severe constraint on geographical mobility. As such mobility has an important role to play in adjusting to the changing economic geography of the UK economy "local homes for local people" is surely a step backwards.