Its all about the money money The economic

It’s all about the money, money…. The economic value of planning Matthew Spry, Senior Director, NLP 10 th March 2015 n @mspry 74 Economic Value of Planning

Structure • Economic and policy context • Economic outlook • Policy reform • The Value of Planning – Key Instruments • Market Shaping • Market Regulation • Market Stimulus • Capacity Building • Conclusions 2 Economic Value of Planning

Economic and Policy Context 3 Economic Value of Planning

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 4 Economic Value of Planning

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 5 Economic Value of Planning

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) Agriculture, Forestry & Fishing Average 2019) Average 0. 3 1. 4 2. 6 -1. 8 2. 4 2. 3 -1. 4 Finance & Insurance -0. 3 -0. 7 Hotels, Restaurants & Leisure 1. 6 0. 2 1. 7 Manufacturing -3. 6 1. 7 0. 2 3. 3 IT & Media 1. 9 -2. 4 Professional Services -0. 6 1. 4 2. 9 Retail 1. 6 -0. 9 0. 0 -0. 5 0. 4 Transport & Distribution 2. 1 1. 0 2. 0 Public Services Utilities 5 year growth forecast (2014 - 2013) -2. 5 Construction Extraction & Mining Recession & Stagnation (2008 - 1. 1 -0. 2 1. 6 4. 4 1. 6 Source: Experian, NLP analysis 6 Economic Value of Planning

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. % Change in sector output (£bn) from pre-crisis peak for construction* 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. 7 Economic Value of Planning Source: ONS/NLP analysis

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 NPPF More opportunity to think locally about how positive and proactive planning can support growth Greater incentive for local authorities to achieve economic growth aspirations 8 Economic Value of Planning “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 21 st century” Practical guidance on assessing economic development and housing needs to support the preparation of Local Plan evidence base

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 9 Economic Value of Planning

1. Market Shaping 10 Economic Value of Planning

Market Shaping: 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 11 Economic Value of Planning

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 ü Taking advantage of market information (e. g. rents, prices, yields, vacancy etc) ü Engagement with key market actors (such as landowners and developers) ü Deliberately seek to change market behaviour by specifying key criteria for development ü Providing an effective balance between flexibility and certainty ü Specific consideration of implications of allocations for land value ü Connect with other policy instruments for example that stimulate demand 12 Economic Value of Planning

Market Shaping: Practical Examples and Strategies Making a place ‘open for business’: What drives investment decisions? Confidence in a location as a place to do business 13 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 Ensure sufficient employment space is available to accommodate Supply chains expansion/relocation Customers Boil down regulations that may hinder or constrain competitive Clusters and competitive advantage / development of sector clusters advantage Consider implementing Enterprise Zone style scheme, providing incentives for firms to co-locate and interact Economic Value of Planning

Market Shaping: Practical Examples and Strategies The dynamics of work are changing – Local Plans need to keep up with new ways of doing business Location derived from clusters and agglomeration Open, innovative economy craves proximity and integration Cambridge Life Sciences & Healthcare cluster A third industrial revolution? Impact of new technology, knowledge and high value added World leading in Tech employment London, East and California South East region* Nissan’s factory in Sunderland 1999 2013 271, 157 cars 4, 594 workers 480, 485 cars 5, 462 workers Factory is now one of the most productive in Europe 744, 000 692, 000 tech/info workers *including Oxford and Cambridge Source: South Mountain Economics Media City Salford 14 Economic Value of Planning 3 D printing originally conceived as a tool to make one-off prototypes. Potential to be scaled up and completely transform manufacturing sector An additive approach to manufacturing Implications for Planning and Property Sector: Telecommunications, media and technology (TMT) industry driving job growth Office demand housing

Market Shaping: Practical Examples and Strategies Planning for a changing retail and leisure economy - spending less in shops but spending more on leisure and experiences. Retail and spending behaviour is constantly evolving Shift to convenience combined with leisure/transport hubs Changing model of retail supply chain / logistics % of total household expenditure Non-food Retail spend 25 Leisure 20 15 Shift to convenience – integrated click and collect at major transport hubs/high footfall leisure centres 10 5 Fulfilment centres/dark stores to cater for rise in online spend 0 2002 Source: ONS Family Expenditure Survey 2012 Leisure includes restaurants & hotels, recreation & culture 2007 was the first year since the 1950 s that no new US shopping mall opened Up to 50% of US shopping malls could be closed or repurposed by 2030 Source: ICSC 15 Economic Value of Planning 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: Telegraph/BBC 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 Source: Retail Gazette

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 16 Economic Value of Planning

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 17 Economic Value of Planning

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 18 Economic Value of Planning

2. Market Regulation 19 Economic Value of Planning

Market Regulation: 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 20 Economic Value of Planning

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 21 Economic Value of Planning

Market Regulation: Practical Examples and Strategies • Setting or applying rules means understanding and articulating the economic contribution of development and giving adequate weight to the full range of economic benefits 22 Economic Value of Planning

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 23 Economic Value of Planning Net additional benefit: Year 2 = 5 jobs / £ 250 K of GVA Year 10 = 30 jobs / £ 1. 5 m of GVA Years 2 – 10 = 140 years of employment / £ 10 m of GVA

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? 24 Economic Value of Planning

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) 25 Economic Value of Planning

3. Market Stimulus 26 Economic Value of Planning

Market Stimulus: 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 27 Economic Value of Planning

Market Stimulus - Examples • Releasing public sector land • Investing in land/remediation/infrastructure • Subsidising development and access to finance (loans/grants) • New vehicles for delivery 28 Economic Value of Planning

4. Capacity Building 29 Economic Value of Planning

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 30 Economic Value of Planning

Conclusions 31 Economic Value of Planning

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 32 Economic Value of Planning

This publication has been written in general terms and cannot be relied on to cover specific situations. We recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. NLP accepts no duty of care or liability for any loss occasioned to any person acting or refraining from acting as a result of any material in this publication. Nathaniel Lichfield and Partners is the trading name of Nathaniel Lichfield & Partners Limited. Registered in England, no. 2778116. Registered office: 14 Regent's Wharf, All Saints Street, London N 1 9 RL 33 Economic Value of Planning © Nathaniel Lichfield & Partners Ltd 2011. All rights reserved.