Victory for Neighbourhood Plans (sort of ...)

Residents of Thame, in Oxfordshire, have voted yes to their neighbourhood plan (the first of two areas to do so - the other is St James near the Centre of Exeter).

Is this a victory for neighbourhood planning? Yes, according to Don Foster MP (minister for localism): "After all Neighbourhood Planning is part of the Liberal Democrat agenda; one of the new community rights introduced by our Government to give people more say over their area and putting communities in charge of setting out the homes, shops and amenities they want". Looking at the details of the Thame's plan, the surrounding debate and the referendum outcome it's hard to disagree with (most of) that assessment. Faced with unpopular plans for 775 homes all on one site, Thame Town Council have come up with a plan that uses a number of dispersed sites and that was supported in a referendum (by a 76% vote on a 40% turnout). You can gripe about the turnout (and there may be local political details of which I am completely ignorant) but taken at face value that looks like giving communities more say over the location of homes, shops and amenities.

That said, this is only a partial victory. If, as Don Foster suggest, this is about putting communities in charge or setting out the homes, shops and amenities that they want, then I think Thame Town Council might beg to differ. After all, the 775 home figure was forced on them by South Oxfordshire, they appealed against this total, lost and then had to come up with a plan to meet the total imposed on them (this is, of course, how neighbourhood plans are supposed to work). Whether the resulting housing is something they 'want' certainly seems open to interpretation.

Will this do much for affordability? Don Foster implies so: "In both cases plans by local people to boost house building in their areas were approved" (my emphasis). I don't see this - in Thame at least - where the neighbourhood plan makes zero difference to the number of houses that are planned to be built in the area between now and 2027. Will 775 new homes be enough to do much about affordability? Given Thame's population of around 11,000 this equates to about 10% population growth over a 14 year period (being generous - I've no idea what happened while all this planning was taking place). That's unlikely to do much for housing affordability in Thame or for housing affordability more generally if most neighbourhood plans (if passed) stick to the limits imposed by higher level authorities.

It's good that neighbourhood planning has ended up allowing the residents of Thame more say over where housing will go in their local community. But let's not exaggerate the benefits either to local communities in terms of building the housing they want or to housing supply in terms of increasing the total number of homes.

The West End Commission

The final report of the West End Commission was published yesterday. As one of the commissioners, I'm not in a good position to provide unbiased comment. It's certainly been an interesting process and both the evidence we received and discussions within the group highlighted the many complex issues that need to be addressed if the West End is to continue to flourish.

From the front page of the Evening Standard, you'd get the impression that the main recommendations were around a 24 hour tube service. In fact, that's just one small part of a much wider set of proposals - the most important of which relate to the need for a revamped governance structure. Without better partnership working across the local authorities, London mayor Boris Johnson and the government it's difficult to see how the range of complex issues facing the West End can be properly addressed.

This focus on governance fits with a wider debate around these issues instigated, in part, by the government's insistence that decentralisation needs to be accompanied by agreements that provide strong governance arrangements. This link is most explicit in the city deals process, but should also play an important part in the negotiations around implementation of the Heseltine 'single pot'. Of course, the government can insist all it wants, but the strongest incentive for better collaboration will come if Local Authorities directly reap the rewards of that collaboration. Without this link, local conflicts can all too easily dominate decision making at the cost of the considerable benefits that would arise from collaboration. Interestingly, on this specific issue, a number of recent government reforms have surprisingly little 'bite' for the West End - hence the commissions recommendation that partnership working would need to be reinforced by some kind of 'city deal' for the area. As noted by our chairman, Howard Bernstein: the success of proposals for the West End will depend on the course of these wider reforms.

How to Kill Nightingales and not Build Houses: Insist on building on Brownfields

Posted by Paul Cheshire, SERC and LSE

The planning system is supposed to safeguard amenity, our wild places and the environment. I have already exposed how it signally failed to protect the shifting sands of Menie from the Trump golf development. I also argued here that refusing to allow any development on Greenbelt land inevitably led to ever higher house prices, a more volatile housing market and to the loss of environmentally valuable or amenity-rich places such as ex-MoD land, grounds of former hospitals or recreation grounds (owned by government or the planning authorities themselves, who in cash-strapped times face a a grave temptation to develop).

These problems are nicely illustrated by recent worries about the future of the nightingale. Suddenly conservation groups have woken up to the imminent loss of the the most important breeding site for nightingales in England. Simon Jenkins (who is also President of the National Trust) rightly and powerfully lamented the coming loss - blaming it on "planners’ inability to tell a woodpigeon from a nightingale". The bitter irony is that he is tragically and dangerously wrong in his diagnosis. 

One might argue that among the culprits, the conservation groups themselves have inadvertently played a leading role in getting us in to this mess. We desperately need land for housing. Thanks in large part to the misguided campaigns of conservation groups our planning system has been systematically not providing such land for two generations, pushing house prices and rents beyond the reach of young people.

Why does this mean that conservation groups share in the blame? Because not only have they been the most vocal and influential lobbyists against relaxing the planning restrictions on land release by one iota, but they have enthusiastically supported ‘building on brownfields’. Apart from being no solution to the housing land crisis, brownfield land is very frequently amenity-rich. The tragic irony is that the nightingales chose to breed on ex-MoD land (the Lodge Hill site on Medway’s HooPeninsula). So it is exactly the type of land the National Trusts and the Royal Society for the Protection of Birds (RSPB) favour for development.

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When the debate and lobbying against the draft National Planning Policy Framework was in full swing about back in 2011, the CPRE, RSPB and National Trust joined forces to campaign against any relaxation of planning restrictions. No building on the Greenbelt! Build only on Brownfield sites! were their cries. The case of the nightingale provides just one example of the unintended consequences.

Worse, perhaps, is that the true enemy of our threatened wildlife like the nightingale is not housing but agricultural intensification, boosted by rising agricultural land prices. Back in 1969 (in an article with John Bowers) I argued that as farmland becomes more expensive, so every scrap is used more and more intensively and the wild things are forced out. But the reason farmland prices have been rising so extravagantly (11,000 percent in the past 60 years, according to the Telegraph) is no longer mainly agricultural subsidies (as it was in 1969), it is the handy 100 percent tax avoidance value of farmland that the very rich use to pass on their money to their heirs. There is now more bio-diversity in back gardens than on English farms.

There is no need for affordable housing and nightingales to be in conflict. They are brought into conflict by two terrible policies: tax loopholes for farmland and not enough land available for housing because of urban containment policies and building on brownfield obsessions. We can and should have both wildlife habitats and houses. The problem is the blanket preservation from development of land whose value is mostly for avoiding taxes: intensively farmed agricultural land surrounding our big cities. 

To solve our crisis in the supply of housing land we need release just a tiny proportion of our greenbelts of the very lowest environmental quality. To put all of this in context, greenbelts cover an area nearly half as big again as all our developed land put together and we certainly would not need to build on ‘all of it’ – or anything remotely like - to make a big difference to housing affordability.

In fact, this can even be win-win. Providing houses where people want to live with the gardens people seek would improve the existing environment and increase bio-diversity! Intensively farmed land has a negligible - even negative - environmental value and is almost sterile from the point of view of wild life; take a look at the 2011 National Ecosystem Assessment. That is the sort of land we should be allowing houses to be built on. The vehement opposition to building on any intensively farmed greenbelt land fails to recognise it for what it is – almost worthless from a social, environmental or amenity perspective. 

Just a tiny fraction would solve our housing problems and take all the pressure off rare habitats like the Hoo Peninsula and other ex-MoD land. That may be legally ‘brownfield’ but is mostly a wonderland of semi-natural habitat. If you want to hear another iconic songbird – the skylark – visit a tank range. The public needs ex-MoD land to be preserved in its semi-natural state and as much access secured as is possible. We need this almost as much as we need more houses near jobs.

Diversity, cities and business performance: some new evidence from the UK

Posted by Dr Max Nathan, SERC, LSE and NIESR

Like many Western countries, the UK has become substantially more ethnically and culturally diverse. The 2011 Census makes this crystal clear. Since 2001, the foreign-born population in England and Wales has jumped from 4.6 to 7.5m. At the same time, the ‘white British’ ethnic group shrank from 87.5-80% of the population.

What are the economic impacts of these deep demographic shifts, and what do they mean for cities? Certainly, population change has been most striking in urban areas: notably, London is now a ‘majority minority’ city for the first time in its history.

Urban factors may also affect how ‘diversity effects’ play out at firm level. Although the public debate is still focused on migrants, jobs and public services, a number of academic researchers are turning their attention to the wider impacts of immigration, minority communities and population diversity. Globally, there are now studies exploring effects on firms’ productivity, innovation, entrepreneurship, or trade patterns; and channels that may influence house prices, or the mix of local goods and services.

There’s been little parallel UK research to date – but in a new SERC Discussion Paper (supported by LLAKES) I explore the links between the composition of 6,000 English firms’ ‘top teams’ and company performance. Unusually, my data allows me to look at both ethnicity and gender mix.

What might we expect to see? Owners, partners and directors set firms strategic direction. So the make-up of a ‘top team’ might generate production externalities through diversity (a wider range of ideas/ experiences, helping problem solving) and/or ‘sameness’ (via specialist knowledge or better access to international markets). These channels may be balanced by internal downsides  (lower trust) and external barriers (discrimination), so that overall effects on business performance are unclear.

Big cities might then amplify or dampen these channels. Agglomeration economies might help productivity, and firms may benefit from large, cosmopolitan customer markets. Alternatively, firms in cities might face more competition, or minority-headed businesses might face discrimination.

My results suggest a non-linear link between top team diversity and business performance, which is net positive for process innovation and net negative for turnover. Further tests on diverse and minority/female-headed firms find positive links for diverse top teams, negative for minority and female-only top teams.

Looking at the influence of urban areas, I find some evidence of complex amplifying and dampening effects. In London, for example, diverse firms are less likely to engage in process innovation; but overall, firms in bigger cities are more likely to.

My data make it hard to identify causal effects, so I interpret these results as pure correlations. The implication is that while diversity has internal and external benefits, penalties from being ‘too diverse’ probably result from external constraints. In turn, that suggests policymakers need to encourage corporate diversity, while taking discrimination more seriously.

In a companion paper on London firms, Neil Lee and I found strong links between firm-level diversity and innovation. This paper suggests diversity-innovation links for firms outside the capital too. Core city leaders should pay attention.

This post was originally published on the Squareglasses blog. 

The State of the LEPs

Posted by Andy Pike, CURDS and SERC

Two and half years on the birth of Local Enterprise Partnerships (LEPs) in England, we’ve reached a critical juncture in their development. The 39 LEPs have been busy building these new institutions and forging and nurturing partnerships since 2010. Last week’s Budget took forward the recommendations in the Heseltine Review, but left the detailed implications for LEPs unclear.

Researchers in CURDS have undertaken the first national survey of all 39 LEPs as part of their involvement in SERC, and the study sought to take stock of the current position and prospects for the LEPs. In early March 2012, CURDS hosted a seminar to disseminate and discuss the findings. Here’s a flavour of what was covered.

“What is the LEP?”

This fundamental question prompted some reflection on the specific nature and purpose of LEPs. For some, the LEP constituted the Board while for others it was the locus of the local partnership for economic growth. Clarity on the aim, purpose and role of the LEPs remained a central issue on which LEPs were developing their own local views and they are were increasingly keen to better understand what Government has in mind for the longer term.

Are LEPs too small and fragmented really to add value and make a difference to local growth?

The size and scale of the LEPs and the fragmented character of the institutional arrangements was a very real concern. Unflattering comparison was drawn with European and other regions whose more substantial and “heavy-weight” institutions and resources for regional and local economic development left the LEPs looking rather limited and under-powered in the competition for the investment, jobs and innovation to generate local growth. The CURDS research revealed a diverse picture of varied capacity and resources amongst the LEPs.

Establishing the staff and finances of the LEPs is complex. Staff contributions are direct, indirect and pro bono and in-kind from partner organisations. Finances comprise a range of funding streams – European, central and local – with some allocated and some won in competition. Direct staffing ranged from up to 40 to less than 1. Finances stretched from an estimated £40m to under £5m. In this kind of resource environment, it rang very true that for local economic growth the “LEPs were only as strong as their partners”.

How can central Government provide the advice and guidance on what the longer-term vision and plan is for LEPs in ways that don’t challenge the idea of ‘localism’ and undermine the autonomy local actors?

This issue is especially thorny. The CURDS research found that LEPs were crying out for a sense of where Government policy is heading and what further responsibilities and resources are coming over the horizon. Yet mixed and unclear messages were emerging from different Ministers and Departments. LEPs want a steer and direction – not  prescription – on what kind of institutional Government would like to see.

Are LEPs competitors and/or collaborators?

While the 39 LEPs were – in numerous cases – bottom-up entities, the CURDS research and discussion at the seminar focused on the issue of how the LEPs relate to each other within the broader network or system. There is evidence of chasing investments, firms and people for individual LEP areas. There are examples too of collaboration on issues of shared concern, whether with neighbouring LEPs or those further afield for example on MoD and the defence estate. Given the national centralisation of key policy areas important to local growth in inward investment and innovation, the CURDS research revealed an uneven set of relationships between specific LEPs and the key national institutions. In a competitive model, the more capable and better connected LEPs will forge ahead leaving others in their wake. In a collaborative model, the benefits of knowledge exchange and learning might be spread out across LEP-land. If rebalancing is still a serious government concern then some thought on how the overall system inter-relates and works would be timely.

How can LEPs maintain their streamlined organisations with growing responsibilities and resources to manage?

The fear articulated here was about “bureaucratisation” and losing the agile ways in which LEPs are trying to do more with less. Balancing this concern was the need to be accountable for the decision-making and disbursement of public funds. Indeed, the CURDS research revealed many LEPs were uneasy and seeking advice on appropriate governance arrangements to address these concerns and assuage the anxieties of private sector board members. Engaging the private sector was seen by LEPs as critical to sustaining their meaningful input. But how can it be done in ways that are accountable and transparent?

How much decentralisation and for whom?

In the wake of Lord Heseltine’s review, further decentralisation of responsibilities and resources are  heading the LEPs' way. Local actors expressed concerns about exactly how this would work. Would there be decentralisation in waves? Would an initial tier of more capable and strong LEPs with recognised economic opportunity and potential to contribute to local growth emerge at the front of the queue for further resources and responsibilities? Where this left the less capable and weaker LEPs was less clear.

Even given the history of flux in the governance arrangements for economic development in England and the alphabet soup of previous eras, it was felt that LEPs were likely be around for a while with little prospect of further change whatever the outcome of the General Election in 2015. Amongst the local actors there was little appetite for further institutional change and upheaval, the costs of which were still being felt by many in the wake of the dismantling of the regional tier. Fundamentally, local actors were trying to get on with the job of growing prosperity locally. “LEPs may come and go but the rationale for the local partnerships remain” as one participant put it.

Two and half years in LEPs have been largely reactive to the changing landscape of economic development governance policy emanating from the centre. In the next two and half years, LEPs might decide that their shared concerns and interests would be better articulated in a collective and proactive way. This is especially the case if the current government’s predilection for the ‘deal-making’ of “asks” and “offers” continues to shape centre-local relations in England.

A version of this piece was originally posted on the CURDS blog.  

 

Housing – and more than housing: what a bad budget!

Posted by Paul Cheshire, SERC and LSE

The British housing market, especially the English housing market, is in crisis. This is not a crisis just confined to housing: it threatens to extend to the whole economy. We have analysed these issues on this blog several times before. The supply elasticity of new housing is approaching zero. In each of the last three years fewer private market houses have been built than in any peacetime year since

early in the 20^th Century. 

The noose constraining new housing development has been tightening for 30 years at least. The cause is mainly the constraints on land supply imposed by our planning system. But these are made worse by the way the planning system injects risk and uncertainty into development, reinforcing the monopoly power of larger British developers (only born and bred British developers can understand the system and only big ones really have the resources to negotiate a way through it), and by a fiscal system which still effectively fines local communities who permit development.

As I argued in 2009 this results in housing becoming ever less affordable relative to incomes, and to ever increasing price volatility. In turn, this creates problems for monetary policy. It also fuels an obsession with house prices, and sucks savings into housing consumption and speculation. Not getting onto the housing ladder is a long term disaster for someone who aspires to a decent standard of living and at least a moderately comfortable old age. Given that housing demand is highly income-elastic, and - as Nick Boles has perceptively observed - as people get richer they aspire to a patch of garden too and the fact that over the past 60 years, real house prices in England have risen more than almost any other asset, it is entirely rational for people to pour money into housing.

That does not make it good for us collectively to behave like this. It is very bad news for people who end up spending too high a fraction of their incomes on the mostcramped housing in the developed world. It is also bad for the performance of the real economy. Over-borrowing to get into the housing market was a major cause of the financial crisis; our housing obsession also almost certainly diverts both funds and the willingness to take a risk from productive entrepreneurial activity.

To illustrate with a personal anecdote: my wife – also an academic - held a chair in Switzerland and so bought a flat there in 1994. Having returned to a chair in London she sold this flat in 2012 for exactly the same number of Swiss Francs she paid in 1994. But while this was the same number of Swiss Francs, converted into pounds Sterling it represented a capital gain of some 50%. The Franc’s appreciation is not hard evidence - but certainly suggestive of a causal relationship. Real house prices in Switzerland have been stable at least since the 1960s (of course there is a cycle but there is no long term upward trend) so the Swiss feel little pressure to be owner occupiers and do not divert all their available funds and credit into buying houses. The Swiss economy has been similarly stable and hasn’t it done well?

Since 2010 the coalition has been trying to make the planning system more responsive to market signals, and give local communities incentives to allow development. As colleagues suggested at the time, it was a mistake to get rid of one planning system without having another in place. The new planning policies and incentives may help to deliver more houses but even if they do it will certainly take time. Well under half of local authorities even have local plans approved yet – a requirement of the new National Planning Policy Framework which goes live today. NIMBY resistance to allowing housing to be built where there is most demand is as strong as ever The last thing a home-owner in the green Home Counties wants is new houses occupying any rolling acres near them. Note the outrage caused by the Planning Minister when he suggested it is reasonable for those lucky enough already to have a patch of garden, not determinedly to frustrate the desires of those seeking a patch of garden of their own

 As colleagues and I have argued before the balance of our judgement is that the coalition’s changes will fall far short of what is really needed to improve things on the supply side.  But it will be at least another four years before we can judge whether the politically costly reforms of the past two years will actually deliver any improvement anyway.

Which brings me to the budget: this is pumping up the demand side and encouraging more borrowing. As Robert Peston and others have noted, the government (that’s us) are shouldering a risk banks have sensibly been fighting shy of. There has to be a significant risk that house prices have further to fall. The budget measures will feed through into house prices higher than they otherwise would be: indeed that is more or less all they will do. Supply is, after all, more or less perfectly inelastic for the reasons given above. We have shaken up a broken planning system but not yet achieved any improvement.

Higher house prices will lead to housing becoming yet more unaffordable, and yet more borrowing secured against highly volatile assets – which policy itself has made yet more volatile. In the long term, house prices tend to rise in real terms. But in the short term, this debt still has to be serviced – while incomes are stagnant, and interest rates will be rising.

All in all a recipe for double disaster: a terrible housing situation made worse and a serious additional risk in the offing. Perhaps the only explanation is the very cynical one. The election is even closer than the economic disaster to which this budget may contribute. Let the next Chancellor get out of that one!

QE: the next bubble?

Posted by Christian Hilber and Paul Cheshire, SERC and LSE

QuantitativeEasing (QE) has been pursued by Central Banks in many countries, few more diligently than in the US and in the UK. Reports from experienced watchers of commercial real estate suggest this could generate a flood of cheap money – not into productive investment but into the higher yields offered by commercial real estate or its liquid versions, Real Estate Investment Trusts. This is because QE pushes yields on bonds and securities ever further below the rate of inflation. Such shifts are already said to be visible in the US where the economy is doing just a bit better than in the UK or Europe. Of course this pushes down yields in real estate in proportion to pushing up market values. According to the FT (£) there could already be signs of this in London.

If investors really believe this low-inflation, low-interest environment is permanent, QE could well trigger yet another financial bubble. The problem is that such touted permanent changes in underlying economic relationships seldom are. Parallels are the supposed ‘step change in productivity growth’ that fuelled the late-1990s IT bubble or the low real interest rates of the 2000s that created irrational exuberance in some US mortgage and housing markets. The difference is that this time, rather than being driven by cheap funding, investment in real estate equity is driven by QE.

The question is: what happens when Central Banks roll back QE in two or three years, and money becomes more expensive? It could trigger a bust in commercial real estate markets because the real economy does not look as if it is going to be driving up rents any time soon. In turn, that could damage balance sheets of real estate companies – and of banks who have lent out the funds in search for a return. What then?

At the moment these are just the observations of well-informed insiders and some straws in the wind. But if this is really happening, then the consequences would be unpleasant indeed. Not a double dip, not a triple dip, but a triple dip recession followed by a financial crisis caused by the attempts to kick start the economy from the first financial crisis. Maybe Central Banks should turn some attention to evaluating the evidence: where are the funds going? What is happening to real estate yields? Are any changes observed in these justified by fundamentals in the economy or are they another bubble in the making?