Planning: Localism versus Growth

I see that DCLG has announced the four groups that will provide free advice to communities in drawing up neighbourhood plans.

To my mind the list highlights the unresolved tensions that lie at the heart of the coalition's approach to planning. I would argue that at least three of these organisations (The Prince's Foundation, The Royal Town Planning Institute, and the National Association of Local Councils in partnership with the Campaign to Protect Rural England) do not appropriately recognise the economic issues surrounding constraints on land use. This is a problem because the good things about neighbourhood planning (giving people control over their neighbourhood) also come at a cost (in terms of constraints on development). I assume that advice from organisations that emphasise the former, but downplay the latter, will tend to reinforce the NIMBYist nature of neighbourhood planning.

In turn, NIMBY neighbourhood plans will directly conflict with the government's stated desire to ensure that planning does not act as a barrier to economic development. I am still unclear how the government intends to square this particular circle.

Regional Growth Fund Round 1

The government has announced the first round of projects that will be supported by the Regional Growth Fund. We are told that: "The government will invest £450m RGF support in 50 successful bids to lever in £2.5bn in private sector investment that will create or safeguard over 27,000 direct jobs and close to a further 100,000 indirect jobs."

With the details provided (severely curtailed by confidentiality requirements) it is essentially impossible to provide any analysis of whether it will achieve this on the basis of the list of schemes agreed.

Instead, it's worth thinking about the implied cost effectiveness of these grants. Writing in 2005, SERC affiliate Colin Wren reviewed the available evidence on the impact of Regional Selective Assistance (a competitive scheme for allocating money to firms in depressed areas). The estimated cost per job ranged from £8,000-£21,000 (in 1995 prices). If the RGF of £450m delivers 127,000 additional jobs that suggests a cost per job 'created' by the government of just over £3,500. In short, if these numbers played out, this would be a remarkably effective intervention relative to existing schemes. Of course, there is another more depressing possibility ...

All of this ignores the issue of whether these jobs are truly additional as well as the fact that government funds the RGF through taxes on other firms and consumers or through borrowing (thus "destroying jobs"). In short, for many reasons, governments (and not just this one) find themselves on tricky ground when they try to talk about the way in which government expenditure "creates jobs".

Finally, a little exam question (not to be taken seriously): If the coalition spending plans differ from labour's by £2bn (or £5bn or £40bn - take your pick) how many jobs would spending this through the RGF "create"?

(Planning) Permission Granted

Local planning authorities approve between 82 and 87% of planning applications. Does this tell us anything about whether 'planning red tape holds back development'?

Unfortunately not, because the number of applications submitted is affected by the rules in place. Putting in planning applications costs time and money, so developers only tend to put in applications if they think they have a reasonable chance of succeeding. If relaxing the rules led to more applications then overall development might increase even if there was no change in the approval rate.

Approval rates do matter (because failed applications 'cost' developers and local authorities) but with approval rates so high (they are 87-94% for commercial development) it is the affect of the rules on submission rates that matters most for understanding the impact of planning on development.

Disposable incomes

Interesting figures from Resolution Foundation showing London as the only region where disposable income growth has been positive between 2003 and 2008.

SERC research on nominal wages suggests a lot of this will be compositional (i.e. driven by the fact that professional/managerial workers have done OK and that they are concentrated in London) but the spatial differences still quite striking.

Planning an easy target?

More on the planning debate. A group of academics, planners and community organisers writing in the Guardian last weekend: "As the budget has shown, the planning system is an easy target." I am not so sure. Easy to target, perhaps, but difficult to radically change. As my colleague Paul Cheshire points out: "In Britain the regulatory system is still essentially as constructed by the Town and Country Planning Act in 1947 [...] There have been many modifications since 1947 but the Act established an approach and framework that has not been superseded". The letter writers continue: "There is, however, little evidence to support the claim that reforming it would produce a substantial boost for economic growth. The evidence that does exist is weak, coming almost exclusively from free-market economists." Technically true (in the narrow sense that economists would use the phrase "economic growth") but misleading in the wider context. Planning requires resources to implement, affects the costs of living and directly restricts, and otherwise seeks to influence, the location of economic activity. For all these reasons (and more) planning has economic consequences. These effects are important and should not be lightly dismissed as the wishful thinking of 'free market economists' driven by 'neo-liberal dogma'.

Planning reforms: serious debate needed

The government growth review (launched alongside the budget last week) is calling for "radical changes to the planning system to support job creation by introducing a powerful presumption in favour of sustainable development; opening up more land for development, while retaining existing controls on greenbelt land; introducing new land auctions starting with public sector land; consulting on the liberalisation of use classes; and ensuring all planning applications and appeals will be processed in 12 months and major infrastructure projects will be fast-tracked"

Planning delivers many benefits, but it is also costly (in terms of resources to implement, the way in which it affects costs of living, its negative impact on economic growth). Many would argue, myself included, that we need a serious debate about whether these costs now outweigh the benefits and whether reform is needed. Depressingly, I am deeply skeptical about whether or not we are going to get that serious debate.

Here is what Richard Summers, President of the Royal Town Planning Institute (RTPI), which represents almost 23,000 of Britain’s planning professionals said in response to the budget:
“If sweeping changes announced to the planning system result in the default position being ‘yes’ to development then there is real danger that within a decade we will end up with an England of tin sheds, Lego land housing and US style shopping malls”.

I simply don't see how that kind of comment adds to the public debate. Someone reading that in, say, East Surrey might fear that these reforms mean huge amounts of development will soon arrive on their door step (a third of East Surrey's population work in London and house prices in London and the South East are very high). But according to my colleague Paul Cheshire, 77.8% of the area of East Surrey is Greenbelt and, as the growth paper makes clear, existing controls on the greenbelt will be retained.

As the RTPI itself notes "Good planning combines an awareness of the competing pressures on our built environment with an ability to manage the very real effects on our space." Yet their comment on the budget simply ignores arguments about the potential economic costs of our current planning system. Not an auspicious start for a very important debate.

Enterprise Zones: Right Diagnosis, Wrong Treatment?

As was widely expected, the budget announced the creation of 21 Enterprise Zones. The location of specific zones will be a matter for Local Enterprise Partnerships, but we are told that the Government wants the zones to support real growth opportunities, not remedy local dereliction. It is hard to reconcile this objective with the available evidence.

To summarise: Enterprise Zones will offer firms five year rebates on business rates, planning regulations will be simplified, Local Authorities will be able to keep business rate growth and government will ensure superfast broadband is available. To understand the impact it’s useful to distinguish between the effect on “UK plc” (i.e. national employment and growth) and what happens in the Enterprise Zone.

In areas with strong economies, planning certainly acts as a break on business expansion and development and Local Authorities often have few incentives to allow more development. EZ type reforms would help encourage growth in these areas. Some of this growth would come at the expense of other areas in the UK, but much of it would be additional. Overall, we might reasonably expect both local and national employment and growth to increase.

But EZ’s make these changes in areas with weak economies. Misguided local planning policies may not be helping in these areas but the fundamental problem is that these are unproductive places for business investment. Five year rebates on business rates and relaxed planning regimes attempt to offset these disadvantages for businesses but they don’t address the fundamental problems such as the educational level of the local labour force. The evidence on whether this has any effect on local employment is, at best, mixed. Even if it does it is highly likely that much of this growth would come at the expense of other areas in the UK. Overall we might hope for some small impact on local employment but should expect little, if any, impact on national employment and growth.

There are many reasons to think that the current planning system acts as a break on growth. Unfortunately, reform in local zones does little to treat this problem and it is hard to see this having much, if any, impact on growth. In the current climate, spending money (or equivalently forgoing taxes) to shuffle employment around the country may not be the wisest use of funds.