High priced London

According to the Economist, London is (once again) the most expensive city in the world for renting office space.

Business cycle fluctuations aside, no surprises here. As my colleagues Cheshire and Hilber (2008) carefully document, planning restrictions in England impose a 'tax' on office developments that varies from around 250% (of development costs) in Birmingham, to 400-800% in London. In contrast, New York imposes a 'tax' of around 0-50%, Amsterdam around 200% and central Paris around 300%.

Greenbelt 'under threat'

CPRE seem to have received plenty of coverage for their report highlighting a 'renewed threat' to the Greenbelt.

The report identifies projects "amounting to the development of a new town greater than the size of Slough over the next twenty years".

That's not a unit of measurement I find very intuitive. However, the BBC translates this as about 1,000 hectares. The Greenbelt is currently 1,619,835 hectares. So in a twenty year period the plan is to use a little more than half of one percent of Greenbelt land to help manage growth in UK cities. In terms of undeveloped land that's an even smaller percentage (because Greenbelt itself only accounts for around 12% of England).

It does make you wonder how government (local and national) can be expected to plan sensibly for the development of our towns and cities if using such a small area of land leads to accusations that they are betraying promises on the Greenbelt?

Mixed communities

Policy Exchange's proposals for selling off high value social housing to fund new building hasn't proved popular with supporters of mixed communities (similar arguments were made wrt to changes to housing benefits).

Perhaps a useful moment then to remind ourselves that the evidence for the benefits of mixed communities is, shall we say, mixed. In addition, these policies are certainly not costless (even for poorer residents who are supposed to benefit). If you want to read more on the evidence, take a look at our SERC policy paper on the effects of mixed communities.

Urban rail investment: lessons from Beijing

Posted by Wenjie Wu, LSE 

While British politicians argue about infrastructure, Chinese policymakers have been laying it out. Decades of heavy investment in urban transport systems have reshaped the face of most Chinese cities. Between 2000 and 2008 alone, for example, the Beijing city government invested about 52 billion CNY (c. £5.2bn) on new rail transit construction, with a subsequent investment of 105 billion CNY (c. £10bn) in the four years to 2012. 

Even in a mega-city like Beijing, this massive investment ought to have a substantial positive effect on local land values, as well as reducing urban congestion. By improving a city’s 'effectivedensity', new transport links help people become more productive or access amenities, benefits which should cash out in higher land proces, and thus property prices. In the case of London’s Jubilee line, for example, LSE research by Steve Gibbons and Steve Machin found positive effects from building the line to nearby house prices. SERC’s Gabriel Ahlfeldt has similar results for the Docklands Light Railway.

Has Beijing’s transport programme had this positive land market kick? In a new SERCDiscussion Paper, I attempt to find out – the first analysis of this kind I’m aware of for cities in BRICS countries.    

I use a ‘difference-in-difference’ methodology, making use of changes in land parcels’ distance to the network when new stations open, but also anticipatory land price changes that happen when investment plans are published. Also, I’m able to use vacant land parcel data during 1999 and 2009 in the entire urbanised area of Beijing, rather than pre-designed sample areas. I use GIS to construct precise proximity measures, and run a host of other cross-checks.

As expected, I find that new transport systems in Beijing have a big average effect on local land prices. For example, in 2008 a new rail station added 3.75-4.2% on residential land prices, for areas 1-2km from the station. Further away, these proximity effects decay in a possible non-linear trend over space. Importantly, shifts in local land values also vary widely according to local socio-demographic characteristics. For example, the value of proximity to new stations falls as crime rates increases, and rises substantially with employment accessibility and local residents’ median education level.  

Given the huge public investment in the city, the question of who gains is important. Certainly, developers and land-owners benefit from appreciating land values in targeted residential and commercial markets. My results also suggest complementary effects between public investment and private sector investment, as higher levels of economic activity should translate into higher future tax receipts. More speculatively, it suggests that improving local people’s human capital and life chances, alongside physical development, may raise the economic gains to developers. 

Olympics blogging

With the opening ceremony just hours away, time for a link to some of our past olympic themed posts:

1. Something old on the impact of the olympics on house building (which made me wonder what is going to happen to the already very bad construction output figures once the olympics is over)

2. Second, some reflections on the likely regeneration and other impacts of the new stadium (from me and from my colleague Gabriel Ahlfeldt)

Enough on the economics, I now intend to sit back and enjoy the sport (from a non-central London location, so back to blogging mid-August.

Does stamp duty stop people moving house?

 Posted by Dr Christian Hilber, SERC and LSE

People buying a home in the UK have to pay stamp duty on the transaction.  Stamp duty-type taxes are one of the oldest forms of taxation – dating back to 1624 – and have long been criticised by economists as being inefficient.

The central case against the stamp duty is that it hampers household mobility. The 2011 Mirrlees Review neatly summarises this argument:

“By discouraging mutually beneficial transactions, stamp duty ensures that properties are not held by the people who value them most. It creates a disincentive for people to move house, thereby leading to potential inflexibilities in the labour market and encouraging people to live […] in properties of a size and in a location that they may well not otherwise have chosen.”

To date little is known about whether the stamp duty does in fact hamper mobility and if so, by how much. In a new SERC Discussion Paper [pdf], my colleague Teemu Lyytikäinen and I provide some answers. 

UK stamp duty - or to use the official name, ‘Stamp Duty Land Tax’ – is an odd tax in that the tax rate jumps dramatically at certain thresholds. For example if you buy a house at the price of £250,000 you pay 1% of the value, or £2500 stamp duty tax. But if you buy a house that costs £1 more, you pay £7500 tax (3% of £250,001).

We exploit this ‘anomaly’ in our empirical analysis. Specifically, we use a Regression Discontinuity Design type analysis to study whether and to what extent the disincentive to move translates into lower household mobility.

We find that the overall effect is very substantial. A two percentage-point increase in the stamp duty from 1% to 3% reduces household mobility by around 40 percent. A closer look reveals interesting additional insights: the stamp duty does not appear to significantly affect labour-related longer distance moves, probably because the benefit associated with the move for these types of moves is greater than the cost, which includes the stamp duty. 

So the piece of comforting news is that the stamp duty may generate little mismatch in labour markets. Essentially, people who get a new job far away are likely to move anyway.

However, there is also a piece of bad news: The stamp duty has a very strong adverse effect on short distance moves, which are typically housing related. This suggests that the stamp duty likely has very detrimental effects on the functioning of local housing markets – the stamp duty induces substantial misallocation of dwellings because households do not adjust their housing consumption in order to avoid the stamp duty. This imposes a hefty welfare cost on the society as a whole.

All of this suggests that the stamp duty is highly inefficient from an economic point of view. In this light, the recent introduction of the 'mansion tax' of 7% for properties over £2m is, albeit popular, a move in the wrong direction.

 

Wealthy households, whose children have moved out for example, may opt to stay in their mansions in order to circumvent the tax. Yet, in the absence of the tax, they may well have preferred to ‘downsize’. It may even pay for them to keep their properties empty for longer periods of time. Both responses are legal but inefficient. A smarter intervention would be a land value tax, or a tax on property consumption – both of which would be much less distortionary, and much harder to avoid.

Whither participation?

There's a strong belief among some academics and large parts of the practitioner community that local engagement/partnership is key to the success of many area based interventions.

Some time ago, I came across an attempt to assess this claim (possibly in the context of Single Regeneration Budget or New Deal for Communities) by looking at whether projects which had strong community engagement did better in terms of outcomes. I remember being surprised that there didn't seem to be any direct evidence that this was the case.

I was reminded of this, in a different (developing country) context, while reading Lee Crawfurd's recent 'Whither Participation?" blog post on Roving Bandit:

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Many social programs insist on beneficiary participation in management, claiming that it is valuable and instrumental for program success. 

Perhaps, for rich parents who have the luxury of being able to spend time worrying about their children’s educations, participating in the Village Education Committee and being given a voice to obtain more resources for their schools is indeed empowering. Poor parents may care just as much about education, but may have no energy left to figure out exactly how to work the system or to figure out what they might be able to accomplish when they are given vaguely defined powers ... perhaps, finding ways to make schools actually work without the community having to worry about it at all would be even more empowering.

Back in England, I can't imagine anything worse than having to meet all of my neighbours after work to figure out how we are going to run the rubbish collection or fix the potholes in the road. That stuff just gets done. Services get delivered without me having to think about it at all. All I need is a mechanism to complain if things don't work, but don't ask me to help you plan how to fix it.

There is a great quote from the earlier paper "Mandated Empowerment" (HT: @thrh)

Both examples raise concerns about committing ourselves entirely to antipoverty strategies that rely on the poor doing a lot of the work.

When you put it like that, it sounds pretty sensible. The implication of which is not I think "don't consult people," quite the opposite - provide an open platform for suggestions, comments, and complaints. Just consider how much work you are asking from your "beneficiaries.

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Which got me thinking. I know outcomes aren't everything, but does anyone know of good evidence in a developed country context (or specifically UK) that tells us whether more or less community participation improves policy outcomes?