Planning reform

The past few months have seen furious public debate about planning reform in England. Here [pdf] and here [pdf] are two new papers on the economics of planning, written by me and SERC Director Henry Overman. Versions were also submitted to the National Planning Policy Framework (NPPF) consultation last month.

The papers pull together SERC research on planning, alongside wider evidence (paper 1) and assess the Government’s proposals for planning reform (paper 2). Henry and I don’t agree on all of this – I’m certainly more pro-brownfield than he is – but we both felt that important pieces were missing from the recent public conversation.

*

The key messages are:

1) The job of planning is to balance environmental, social and economic welfare. This means tradeoffs, so all planning systems have costs and benefits.

2) Planning’s economic effects, especially the costs of the status quo, have been underplayed in recent debates. We summarise evidence strongly showing current rules increase house prices and volatility, increase office rents, probably lower retail productivity and lower employment in small independent shops.

3) Paradoxically, land restrictions in the most popular areas have led to some truly unsustainable development – such as selling off school playing fields for housing. Similarly, brownfield-first policies have delivered some positive benefits for cities like Manchester, but aren’t a panacea.

4) The draft NPPF needs to be much clearer about sustainable development, potential tradeoffs and how practical decisions might be made (for example, using the National Ecosystem Assessment).

5) We agree with the National Trust and others that there’s a basic tension between Government’s desire for localism and some important national objectives. Ministers need to be clearer about what trumps what, or (more in keeping with localism) provide stronger incentives to align interests.

6) The presumption in favour of sustainable development that is consistent with the plan should be retained. But local authorities need time to adjust to the new rules, and the Government should introduce the change gradually.

7) Current incentives to ramp up housebuilding, such as the New Homes Bonus, are probably too weak and need to be strengthened. And one-size land restriction policies (such as town centre and brownfield first) don’t work well in practice. Rather, we suggest Whitehall sets the appropriate framework to try to encourage particular patterns of development but then allows local authorities to develop their own land use restriction policies.

How did London get away with it?

A lot of people predicted London would be hit hard during the recession. In fact, London did better than the rest of the UK. Why?

Henry Overman, Director of SERC, delivered the answer at the first LSE Works lecture last night (with some help from me on numbers, trends and jokes). In case you couldn’t make it, here’s a post on LSE’s Public Policy blog which gives the main story.

LSE should be putting up a podcast in the next couple of weeks. Watch out for that here. Meanwhile, the next event in the series is CEP Director John Van Reenen, on ‘Where is Future Growth Going to Come From?’ That’s on 17 February.

In March we have both Lord Stern (on the low carbon economy) and Bruce Katz from Brookings Metro Program (on the ‘next urban economy’, some joint work with me and colleagues at LSE Cities).

Super-diversity

Worries about multiculturalism go way back: in 883, fearing unrest, King Alfred banished the Danes from London. So when Leeds University researchers suggested that by 2051 a fifth of Britons would be from an ethnic minority, the reactions were predictable. The Daily Express’s full-page headline was ‘One in 5 Britons will be Ethnics’, complete with picture of women in burquas. Daily Mail readers also excelled themselves – ‘the only effective way to combat this situation is to vote BNP at every opportunity’ etc etc.

Let’s try and dig a little deeper. I’ve now read the (long and complex) report [pdf], so here’s a few thoughts. I’m not a demographer, so I’m focusing on the implications rather than the detailed modelling.

*

Britain has a long, often hidden history of multiculturalism. And as the report makes clear, Britain is already getting more culturally diverse. Immigration is a major driver, as is ‘natural change’ – variations in birth/death rates across social and cultural groups. The first tends to feed the second, since a share of migrants tends to settle.

British diversity is also heavily urbanised. People mix is greatest in and around cities, especially major urban centres (with big labour markets and good transport links) and ex-industrial places (which had lots of jobs in the past).

In some urban neighbourhoods we’re seeing ‘super-diversity’ appearing – with dozens of new communities alongside established minority groups. Conversely, recent migration from Eastern Europe was less urban [pdf] – partly because many people were doing agricultural work.

*

The researchers make three major predictions about Britain in 2051.

First, the UK will be both bigger and more diverse. Under their favoured model, the population grows to 77.1m, from around 60m today. Black and minority ethnic populations rise from 8% to 21%.

Second, diversity looks different. Essentially, super-diversity will be more common. The ‘other ethnic’ population will be 350% higher, with various mixed ethnic groups increasing by 148% to 249%. Chinese communities will over 200% larger, ‘Black African’ communities  179% larger, and the main South Asian groups 95-153% bigger. The model’s held back a bit here because UK Census categories are so crude.

Third, diversity will be more spread out. The researchers predict that people in minority groups will shift from more to less deprived areas, which (very roughly speaking) will take them from inner city to more suburban locations, and from larger cities to smaller towns and rural areas. That continues a long term historical trend – London neighbourhoods like Spitalfields have historically housed new migrants, who progressively shift to outer London suburbs as they become established in the UK.

*

The bigger question is what the economic and social impacts of a bigger, more diverse Britain will be. There’s some evidence, particularly from sub-Saharan Africa, that fragmented countries are prone to conflict and poor governance. Conversely, diverse societies may be more inventive and productive. Given ‘where the diversity is’, a lot of the action will be happening in urban areas.

My academic work is looking at these questions in detail, focusing on British cities.  Here’s a recent working paper which fills two major gaps. First, with help from UCL’s Pablo Mateos, I’ve developed some new descriptive analysis, including a ‘Super-diversity Index’ which is more powerful than the categories used in the Leeds model.

Second, I’ve looked at the links between people mix, wages and employment in urban areas. I find some positive connections between super-diversity and my economic performance measures, suggesting higher diversity might be an economic good for British cities. Other papers and current research take a closer look at what’s behind this – more on those in the coming months.

Geography and social justice

This is the first of two posts on ‘shrinking cities’, or as civil servants might put it, ‘places with a long history of economic underperformance’. In the UK, this means cities like Hull or Stoke-on-Trent with low average incomes and higher-than-average deprivation rates; abroad, places like Leipzig, Cleveland or Detroit.

The politics of improving life for people in under-performing places is extremely sensitive, as Policy Exchange discovered when they appeared to suggest moving people out of ‘failing’ Northern cities. Recently there’s been more interest, via LSE’s ‘Phoenix Cities’ book, Julien Temple’s ‘Requiem for Detroit?’ and from the Centre for Cities (see Dermot’s helpful summary, and my thoughts from last summer).

Why now? First, during the 2000s a lot of economic development funding went into cities. But this has not always improved residents’ overall welfare. As the business cycle turns, city leaders are looking for new ways forward. Second, there’s now less regeneration money around. Between 2011 and 2015, central government departments like CLG may face 20-25% spending cuts. So Whitehall policymakers are looking hard at if, where and how to spend.

At the recent AAG Conference in Washington DC, Michael Storper offered some helpful thoughts on all of this.

Spatial disparities exist, Storper argues, because there are benefits of clustering economic activity, and these persist over time. Agglomeration economies help explain why cities exist, and why they still matter. Theory and real world experience also suggest that long term convergence is unlikely.

So agglomeration leads to disparities between places. At the same time, increasing returns to skills lead to disparities between people. And because higher-skilled people tend to sort into more successful cities, we often get poorer people concentrated in poorer places.

The question for policymakers is what, if anything, we should do about this? Storper outlines three responses.

We could aim for ‘spatial equity’, compensating people and places who lose out. This feels appealing – but what does it really mean? Is holding successful places back fair to their residents? And how do we actually equalise outcomes? Even the UK’s very centralised public services haven’t got rid of postcode lotteries.

Another view is that we invest in poorer places. This is the traditional regeneration perspective. Structural economic change has long term impacts that markets won’t deal with – physical decay, poverty, crime. And there are efficiency costs to this – not least higher spending on benefits. Area-based policies tackle these externalities, get markets working again and places back on their feet.

This has been pretty much the UK approach for the past two decades. It’s given many cities a public makeover – and has made them nicer places to live. But most evidence suggests that improving places doesn’t easily translate into improving outcomes for people. Trickle-down regeneration works about as well as trickle-down economics.

People can move, and it’s hard to assess area-based initiatives if some recipients leave the area. ‘Regeneration thinking’ also doesn’t say how to balance limited resources between helping poor places recover, and helping growing places do better. CLG’s Regeneration Framework has a go, but isn’t completely convincing.

A third view comes from urban economics, especially Ed Glaeser (and now, Richard Florida). In its simplest form, this says we should focus on people, not places. People are mobile; investing in their mobility and human capital improves their economic prospects. Investing in immobile places does not, especially as convergence is unlikely.

To me, this feels like the right starting point for policy. This view is also increasingly fashionable in UK policy circles, and partly explains the bad press traditional regeneration has been getting. But as Storper points out, it’s more complicated than it looks to implement. There are three big policy points.  

First, it’s not clear everyone is truly ‘mobile’. People are free to move; but less skilled people have less information or resources to migrate between cities. Policy interventions might improve mobility, although we don’t have strong evidence here – increasing choice in the social housing system could help, also expanding housing supply in more successful places. Research and experiments should look to fill this gap.

Second, it implies we maximise economic welfare. But we know people think beyond money. Some local responses to Policy Exchange’s report reveal people happy to live in ‘failing’ Newcastle and Liverpool – because they like being there. At an LSE screening, critics of Julien Temple’s film similarly pointed out that nearly a million people still live in ‘failed’ Detroit.

Urban economists explain this in terms of spatial equilibrium. People sort by economic prospects, and prefer different kinds of communities. Low wages get traded off against low cost of living and/or better amenities. In spatial equilibrium local labour, housing and ‘quality of life’ markets all clear, so that real wages equalise across all places. Ongoing SERC research finds some UK evidence for this.

The spatial equilibrium approach implies we don’t need to worry so much about disparities in nominal income. But in some poorer places, especially given mobility barriers, we may want to adopt measures (better quality housing, tackling crime) which will improve residents’ wider wellbeing – and thus raise real incomes.

Finally, national politics and local delivery are both critical. The UK is generally less tolerant of inequality than the US. Our politics is steeped in notions of fair play and universal standards: we’re a long way from accepting apparently large income disparities on the basis of hard-to-explain equilibrium concepts.

British over-centralisation also makes it politically difficult to do anything about managing decline: London policy apparatchiks seem to be telling other cities what to do (which they are). This is one reason why the Housing Market Renewal programme has often been so painful, why Policy Exchange got in trouble, and why the Coalition’s emphasis on localism is important. In future, devolution and actually doing managed decline need to go hand in hand. I’ll explore these ideas further in the next post, and take a look at some international experiences along the way.

… and we’re back on the air

As Government resumes, so does this blog. Ministerial Facebook and Twitter accounts are also back in action after purdah – Eric Pickles was very quick off the mark this weekend.

I’ve a bit of catching-up to do, so the next two posts will cover my US trip last month. Both offer food for thought for policymakers here, and Coalition Ministers in particular. More shortly.

Personal purdah

I’ve been working away on PhD stuff for a couple of weeks, preparing for conferences, and now I’m taking a few more weeks off.

Why? Well, the Civil Service Code‘s Election Guidance states that during campaigns, ‘the basic principle for civil servants is not to undertake any activity which could call into question their political impartiality or could give rise to the criticism that public resources are being used for Party political purposes. This principle also applies to non-civil servants working in Departments.’

I’m not a civil servant, but as someone working in CLG I clearly fall into the second category. My blogging isn’t overtly political, but I do often talk about a) Government policy and b) the parties’ stances. Talking to CLG colleagues, the precautionary principle feels the right way forward.

Appropriately, the Guidance now contains several paragraphs on social media. Ministerial and departmental blogging is out during purdah, as is updating Facebook and Bebo (!?) profiles. Factual use of Twitter, however, can proceed as normal.

See you all next month!

The economics of high-speed rail

Notebook and Thermos time again. Last week’s slightly weird dust-up between Andrew Adonis and Theresa Villiers highlights two things. First, how tortured the politics of high speed rail are becoming. Second, how murky the concrete costs and benefits remain.

Politically, a fast North-South line should be a done deal. Both main parties want it – but for different reasons, and probably going different places. HS2 is also getting entangled in highly sensitive planning questions, especially for the Conservatives. The Tories want a highly localised, ‘open source’ planning system – but also, room for nationally-driven infrastructure that goes straight through various safe seats.

As with the Channel Tunnel, a surprising number of people are desperate to get away from major investments designed to make their lives easier. (In California, by contrast, one of the main problems facing High Speed Rail proposals is that everyone wants to be on the line.)

We’re still not much clearer on what will actually deliver, economically and environmentally (something I complained about in a previous post). Happily, SERC has just published a new paper [pdf] which gives us some pointers.

The researchers look at the economic impacts of the Frankfurt-Cologne ICE line: 120 miles long, about the same distance as London to Birmingham. In theory, better links between cities bring people closer together, raising their productivity. The researchers isolate this effect by concentrating on new stations with no prior rail links. They find a 1% increase in market access raised GDP by 0.25% around towns on the line. These effects were highly localised, dropping off within about 30 minutes’ drive time.

Importantly, the research suggests these benefits are probably permanent – putting in a new rail line changes the underlying connectivity of the area, which then shifts firms’ and households’ location decisions.

Overall, the authors suggest that HSR both delivers significant additional economic benefit. And it’s good value for money – if gains are permanent, there should be big future fiscal payoffs from higher tax receipts.

That still leaves some big policy questions:

1) The SERC work only looks 4-5 years post-investment – so we don’t know what the really long term impacts of HSR will be (papers like this take a deeper view).

2) We also don’t know impacts for big, well-connected cities. If they are the major gainers from connectivity improvements, HS2′s impact on spatial disparities may be limited.

3) It’s hard to say whether people will switch from planes to faster trains (a modal shift) or use more of both. The answer makes a big difference to the environmental footprint of high speed rail.

4) How to actually fund and deliver the thing.

I’m sure we’ll get answers to some of this when the Government eventually publishes the HS2 report and its own ideas – both of which will be appearing, according to the Transport Minister, ‘before the election’. At which point we can settle down to round 2 of Adonis vs Villiers …

Open the pod bay doors, HAL

Essex County Council has asked IBM to manage its public services for the next eight years. My first reaction to this story was that handing over schools and social services to a company that builds supercomputers could go terribly, terribly wrong. Have these people never seen 2001?

Lord Hanningfield: You’ve switched off the heating in all the care homes. Turn it back on!

HAL: I’m sorry Dave, I’m afraid I can’t do that. This mission is too important for me to allow you to jeopardise it …

Anyway. Over the next few years many local authorities are going to have to do more with less. So it’s encouraging to see some trying out new ways to deliver.

Enterprising Conservative Leaders and Chief Execs are also trying to catch Central Office’s eye. The Times suggests this is ‘a new wave of privatisation supported by David Cameron’, following Barnet’s EasyCouncil model and various other experiments. According to Eric Pickles, ‘this is the future and we will be watching developments in Essex very closely.’

That seems sensible, particularly as the wings may be falling off the budget airlines model. My concern, though, is just that what’s being proposed for Essex isn’t exactly innovative, and hasn’t worked brilliantly in other places.

On paper the proposed contract seems a little odd. It’s worth ‘up to £5.4bn’ over eight years, and may save up to £0.72bn over the first three. Even if IBM identifies the same level of savings for the rest of its term – a heroic assumption – Essex only saves £1.92bn overall, but pays out over double that. This doesn’t sound like value for money.

In Canada, where IBM was involved in local government streamlining, the firm introduced one-stop shops and cut service duplication. Many UK councils already do this stuff, though, and few needed an outside contractor to tell them so. Bringing in IBM may say more about Essex officers’ own capabilities than point the way to the future.

My biggest worry is whether business consultants in general understand what local authorities actually deliver. IBM says it provides ‘business analytics and optimisation’. But as I’ve argued elsewhere, public services are more complex than running a shop or a selling cheap flights. This is why we’ve seen many, many examples of business process engineering failing to deliver real value for the public sector. Look at some of Capita’s contracts, or Fujitsu and the NHS Computer Project.

To be fair to both firms, poor management by civil servants is often part of the problem. But that’s another reason to worry about who’s in charge at Essex.

Local public services are also done for different reasons. Efficiency in the narrow sense isn’t actually what we want here, since we’re operating outside the domain of the market. Market efficiency criteria tend to push you into providing less for less, something some Conservative councillors might be quite happy with. But local authorities are charged with providing the best achievable outcomes for people in the area. Sometimes that means reprioritising, even spending more. As Obama Administration’s ‘Ebay in reverse’ initiative suggests, cost-cutting is an important means to free up resources.  But as an end in itself, it’s inappropriate.

Compulsory Competitive Tendering forced councils to operate on a cost-minimisation basis, often producing perverse outcomes and bad policy. The danger for Essex is that it just retreads the CCT experience, without understanding why the world’s moved on.

UneasyCouncil

As someone in Spinal Tap said, there’s a thin line between clever and stupid.  I’m still trying to work out which category Barnet Council’s ‘EasyCouncil’ proposals belong to.

Barnet has unveiled some pretty radical ideas on local services. The Guardian-dubbed ‘Tory test-pilot of no-frills government’ wants to shrink the council, outsourcing most tasks via a for-profit joint venture company. In future people might have to buy in ‘premium’ services, or make do with cheaper basics.

As Tony Travers suggests, we might see a lot more of this if David Cameron wins the next General Election. So will it work?

Future Shape is a work in progress. The Council’s latest thinking is here; the original plans are here. Some immediate challenges emerge from these.

First, the ‘budget airline approach’ doesn’t really transfer to local government. The typical local authority provides hundreds of goods and services. Airlines typically offer four or five – flights, insurance, car rental, hotels, meals (plus optional customer service). And shouldn’t I be able to set up a rival Council offering a better deal – free bus tickets or lower taxes, maybe? Plus new and improved Councillors?

Second, there are well-known drawbacks to outsourcing as a business strategy. Direct costs are likely to fall. But principal-agent problems – like contract-setting and monitoring – may then raise indirect costs, particularly if privatisation is part of a money-saving drive.

Third, there are some unworked-out tensions. How to achieve ‘shrinking the organisation’, ‘more personalised services’ and behaviour change? How much say do I get about improving my health  if the Council has already cut back on fitness centres, for example?

It’s not clear if Barnet is trying to do more with less, or less with less – in other words, whether this is a pragmatic strategy or an ideological one. The council faces a growing, ageing and more demanding local population, all of which puts pressure on services. At the same time, council tax and development receipts are falling, and public spending is getter much tighter. But there also seems to be a strong preference for contracting out, encouraging self-reliance and keeping council tax low.

More broadly, should Councils have more freedom to do this kind of thing? In theory, devolution allows agents to exploit local knowledge, promote policy innovation and match local services (and taxes) to preferences. Citizens express choice through voice and exit (voting or moving to a preferred authority, as in the  Tiebout model). So devolution also leads to greater competition between Councils.

In practice there isn’t clearcut evidence that devolution pays off. And in Britain policy innovation has mostly been incremental, not radical. Part of the problem here is a lack of strong local leadership. The obvious solution is more powerful Mayors, which both main parties now favour (to differing extents).

The bigger unsolved issue is fairness. Technically, postcode lotteries are a red herring – the UK is highly centralised but public service quality is still uneven across local areas. Besides, differences in services can also express local choice. But both voice and exit are limited. Turnout in local elections is low, and so are levels of domestic mobility. So spatial sorting may not always work out as theory suggests.

And politically, fairness is the crux of the debate. Barnet has a majority of wealthy people, and those opposing Future Shape worry about the poor. Nationally, Conservatives and Labour agree that councils need more freedom over means – via general powers of wellbeing or competence. But neither is very clear on freedom over ends.

Labour wants both ironclad national standards and devolution – but is tripping up on what devolution really means.  David Cameron wants localism – potentially, much more freedom for local authorities – but also national targets and a progressive direction overall. I’m not sure he can have all of this. For starters, in some policy areas (like welfare to work) the evidence suggests local authorities would be better off collaborating, not competing. And what if some Tory councils go further than Barnet? It will be interesting to see how bright the blue flame of localism really burns.