the economic value of planning
TRANSCRIPT
Economic Value of Planning
Matthew Spry, Senior Director, NLP
10th March 2015
n @mspry74
It’s all about the money, money, money….
The economic value of planning
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Structure
• Economic and policy context• Economic outlook• Policy reform
• The Value of Planning – Key Instruments• Market Shaping• Market Regulation• Market Stimulus• Capacity Building
• Conclusions
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Economic and Policy Context
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After a turbulent few years, the economy has been gathering momentum
Indicators•Falling inflation and unemployment
•Business investment is recovering
•Housing market indicators have picked up sharply
•Consumer spending has been the biggest driver of recent growth
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But still subject to uncertainty and geographical disparity
• Productivity and wage growth remain disappointing..
• ..while exports are still lagging behind pre-recession levels
• International uncertainty
• Localities with the strongest growth potential are those with a strong private sector base and particular concentration of high growth sectors...
• ..with big cities, London and SE leading the way
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With a key reliance upon certain sectors for growth, including construction and professional services
Average annual growth rate for employment by sector for each cycle (%)
Decade of growth (1997-2007) Recession & Stagnation (2008-2013)
5 year growth forecast (2014-2019)
Source: Experian, NLP analysis
Retail
Finance & Insurance
Transport & Distribution
Hotels, Restaurants & Leisure
Public Services
Construction
Professional Services
IT & Media
Manufacturing
Agriculture, Forestry & Fishing
Extraction & Mining
Utilities
Average Average Average
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Construction output remains 12.2% below its peak. Private commercial/industrial construction still has the longest way to recover to reach its pre-crisis output levels.
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Infrastructure
Housing(Public)
Public** (non- infrastructure)
Total Construction
Housing (Private) Private
Commercial
Private Industrial
* Pre-crisis peak for total construction was 2007**Public sector construction of buildings such as schools and colleges, hospitals, universities, fire stations, prisons and museums. NB excludes housing and infrastructure.
Change in sector output (£bn) from pre-crisis peak for construction* %
Source: ONS/NLP analysis
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Planning reform has placed economic growth firmly at the heart of the planning agenda, with a renewed emphasis on the important interactions between planning and growth
“Significant weight should be placed on the need to support economic growth through the planning system”
“To help achieve economic growth, local planning authorities should plan proactively to meet the development needs of business and support an economy fit for the 21st century”
More opportunity to think locally about how positive and proactive planning can support growth
Greater incentive for local authorities to achieve economic growth aspirations
Practical guidance on assessing economic development and housing needs to support the preparation of Local Plan evidence base
NPPF
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The Value of Planning
• RTPI research to examine the value of planning, focusing on economic and financial value
• Recognises that planning helps to create the kinds of places where people want to live, work, relax and invest..
• ..and is much broader than a purely regulatory role
• Identifies ‘planning’ as the deployment of policy instruments intended to shape, regulate and stimulate the behaviour of ‘market actors’ and to build their capacity to do so
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1. Market Shaping
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Market Shaping: The Theory
• Planning = important context for decision making by landowners, developers, investors and others, by • increasing certainty• reducing risk
• encouraging market actors to see benefit for themselves in meeting wider policy objectives
• It ensures that individual developments are planned as part of a broader picture rather than in isolation• encouraging the provision of ‘collective goods’, such as better
connectivity and improved public realms
• Planning as a framework that encourages and rewards integration within the process of development, and deters disintegrated behaviour
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Market Shaping: Practical Examples and Strategies
• #1 – Plans, Strategies and Visions
• Used, particularly at the local level, to articulate how places should change over time
• Reliance upon other parties to share and help implement the vision• Cross-boundary issues / functional market areas
• Relies upon a high quality evidence base and navigating a process that can make it difficult to see wood for the trees
Key Success Factors
Taking advantage of market information (e.g. rents, prices, yields, vacancy etc)
Engagement with key market actors (such as landowners and developers)
Deliberately seek to change market behaviour by specifying key criteria for development
Providing an effective balance between flexibility and certainty
Specific consideration of implications of allocations for land value
Connect with other policy instruments for example that stimulate demand
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Market Shaping: Practical Examples and Strategies
Critical factors What can planning do?
People
Proximity to skilled workers
Labour productivity & flexibility
Provide adequate scale of housing for work force
Secure development commitment to drive skills and training
Ensure right type of land / business space is available for different industries to function in areas with access to labour
Place
Quality of life/amenities
Accessibility/transport
Infrastructure
Opportunity for development/expansion
Planning policy/development that preserves and promotes quality of place and access to labour
Plan pro-actively to meet development and space needs of business
Explore approaches to unlock or bring forward employment space by providing upfront infrastructure to secure investment
Business
Supply chains
Customers
Clusters and competitive advantage
Ensure sufficient employment space is available to accommodate expansion/relocation
Boil down regulations that may hinder or constrain competitive advantage / development of sector clusters
Consider implementing Enterprise Zone style scheme, providing incentives for firms to co-locate and interact
Confidence in a location as a place
to do business
Making a place ‘open for business’: What drives investment decisions?
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Market Shaping: Practical Examples and StrategiesThe dynamics of work are changing – Local Plans need to keep up with new ways of doing business
World leading in Tech employment
London, East and South East region*
744,000 tech/info workers
692,000 tech/info workers
California
*including Oxford and Cambridge
Source: South Mountain Economics
Implications for Planning and Property Sector:
Telecommunications, media and technology (TMT) industry driving job growth
Office demand and housing
A third industrial revolution?
Location derived from clusters and agglomeration
Factory is now one of the most productive in Europe
Impact of new technology, knowledge and high value added
1999271,157 cars4,594 workers
2013480,485 cars5,462 workers
Nissan’s factory in Sunderland
3D printing originally conceived as a tool to make one-off prototypes. Potential to be scaled up and completely transform manufacturing sectorAn additive approach to manufacturing
Open, innovative economy craves proximity and integration
Cambridge Life Sciences & Healthcare cluster
Media City Salford
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Changing model of retail supply chain / logistics
Shift to convenience combined with leisure/transport hubs
Retail and spending behaviour is constantly evolving
2007 was the first year since the 1950s that no new US shopping mall opened
Up to 50% of US shopping malls could be closed or repurposed by 2030
Source: ICSC
% of total household expenditure
Source: ONS Family Expenditure Survey
Leisure includes restaurants & hotels, recreation & culture
Shift to convenience – integrated click and collect at major transport hubs/high footfall leisure centres Fulfilment centres/dark stores to
cater for rise in online spend
In the past five years (2009-13) Tesco has opened six dotcom centres in and around London
Other retailers include Sainsburys, JLP (Waitrose, John Lewis) are opening ‘dark stores’ targeting city/urban edge locations to cater for online shopping demand
Amazon to open pick-up lockers at London tube stations starting with Finchley Central and Newbury Park
Amazon has also tied up with Network Rail’s Doddle to create up to 300 click and collect centres at rail stations
Source: Retail GazetteSource: Telegraph/BBC
Market Shaping: Practical Examples and StrategiesPlanning for a changing retail and leisure economy - spending less in shops but spending more on leisure and experiences.
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Market Shaping: Practical Examples and Strategies• In a recent NLP survey of Local Authorities, around half of respondents felt
that the strategies they had in place are likely to respond effectively to future economic conditions.
The extent to which Economic Development officers and Planning officers view their Local Authorities’ suite of strategies (i.e. planning, economic, regeneration etc.) as responding to the likely future economic conditions for their area
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Market Shaping: Practical Examples and Strategies• #2 – Property Rights Reform
• Political, social, economic and legal institutions paying more explicit attention to how markets are constructed, rather than entrusting this to informal change.
• Decisive and deliberate institutional reform of property rights can have a significant effect on developer behaviour and development opportunities.
• e.g. land supply competition, land value tax, “use or it lose it”, CPO
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Market Shaping: Practical Examples and Strategies• #3 – Strategic Market Transformation
• Deliberate ‘place production’ adding value from comprehensive, well-planned and integrated approaches to development
• Creating entirely new places or rescuing places that have fallen into decline• e.g. urban expansions and major regeneration projects
• Area-based plans / development frameworks• A significant feature of pre-recession planning• Most recent examples focused on urban extensions
• Challenge is to get the right balance of prescription, quality and flexibility to change
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2. Market Regulation
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Market Regulation: The Theory
• Regulatory instruments seek to compel, manage or eradicate certain activities, thereby limiting actors’ scope for autonomous action
• In the UK, development management (formerly ‘devt control’) is the best known regulatory instrument affecting the use and development of land
• To ensure their intentions are achieved, regulatory instruments need to be supported by effective enforcement procedures
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Market Regulation: Practical Examples and Strategies
• #1 – Discretionary vs pre-defined regulation
• Discretionary approaches consider each case on its merits but may publish in advance what will be expected in individual cases, while ‘material considerations’ may be brought into play when planning applications are submitted
• Pragmatic and enable flexibility, as circumstances change
• Pre-defined approaches publish comprehensive standards, norms and regulations setting out in advance what is permissible
• Create greater certainty and less open to political manipulation
• Examples include Design Codes and Local Development Orders (LDOs)• Difficult to get right balance of control/flexibility
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Market Regulation: Practical Examples and Strategies
Economic Benefits
• Setting or applying rules means understanding and articulating the economic contribution of development and giving adequate weight to the full range of economic benefits
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Market Regulation: Practical Examples and Strategies
• Understanding the counterfactual position (i.e. what would happen without the development)
• The cost of doing nothing
• Recognising future growth potential
• Recognising changing world of work
Net additional benefit:
Year 2 = 5 jobs / £250K of GVA
Year 10 = 30 jobs / £1.5m of GVA
Years 2 – 10 = 140 years of employment / £10m of GVA
Econom
ic Va
lue (Jobs / G
VA
/ Taxes)
Time
Yr 2Yr 10
Net additional benefit
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Market Regulation: Practical Examples and Strategies
• Consider the economic benefits beyond just quantity of local jobs• Thinking about wider contributions of business growth, e.g.
• ‘Gateway’ entry to labour market • Retaining productive capacity in UK economy• Growth in productivity• Maintain competitiveness• Deliver profitability• Taxes• Returns to shareholders• Pension returns• Investment
• National policy imperative and a sustainable economic future• How well are these factors reported/captured in the planning
balance so they can be taken into account?
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Market Regulation: Practical Examples and Strategies
• #2- Planning Obligations
• These can:• Prescribe the nature of a development (e.g. affordable housing)• secure compensation for any consequent loss or damage (such as
open space)• mitigate a development's impact (e.g. by enhancing public transport
provision)
• Market regulation ensures private sector takes more responsibility for the social and infrastructure costs of development, rather than leaving these to be picked up entirely by the public purse
• E.g. Section 106 agreements and Community Infrastructure Levy (CIL)
• Challenges around viability and effective delivery chain for infrastructure (esp. balance between s.106 and CIL)
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3. Market Stimulus
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Market Stimulus: The Theory
• Helping to make development happen by nurturing, encouraging and stimulating development activity, especially in thin or fragile markets
• Facilitates the individual decisions of market actors (such as developers) by expanding their room for manoeuvre
• Directly impacts on financial appraisals by making some actions more (and some less) rewarding for particular actors
• Usually specified as a discretionary rather than mandatory activity for planning authorities
• Patience and taking a long term view – success often measured over a whole economic cycle
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Market Stimulus - Examples
• Releasing public sector land
• Investing in land/remediation/infrastructure
• Subsidising development and access to finance (loans/grants)
• New vehicles for delivery
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4. Capacity Building
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Capacity Building
• Often an ethereal concept
• Capacity building enables actors to operate more effectively on an individual and collective basis:• ‘Culture eats strategy for breakfast’• Looking afresh at longstanding planning problems / challenging
preconceptions
• Producing and sharing information and evidence, for example about real estate markets, trends and opportunities• Public sector drivers significant investment decisions simply by
providing the data upon which decisions are made- Information vacuum = uncertainty and risks
• Engaging through the plan-making process
• Encourage networking and cross-discipline working
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Conclusions
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Conclusions• Positive signs that economic recovery has momentum
• But significant disparities remain between different localities and their ability to capture future growth
• Policy reform has placed economic growth towards the top of the agenda
• Planning has a vital role to play if it thinks laterally and takes a positive and holistic approach…
…recognising the value it can have in shaping, regulating and stimulating local markets
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