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A presentation at the Planning Advisory Service's LGA Leadership Academy November 2014.
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Economic Value of Planning
Matthew Spry, Senior Director, NLP
29th November 2014
Economic Value of Planning
What role can planning play in stimulating economic growth?
Economic Value of Planning
About Nathaniel Lichfield & Partners
• RTPI Planning Consultancy of the Year (x3) 2012-2014
• Founded 50 years ago – economics-based planning consultancy
• Economic strategy for Milton Keynes
• Independent, and now employee owned
• 200 staff
• 5 offices (London, Newcastle, Cardiff, Manchester, Leeds
• Work for public and private sector
• Economic evidence base for local authorities
• Economic impact assessments and corporate economic footprints
• Supporting investment strategy and making economic case
2
Economic Value of Planning3
Structure
• Economic and policy context
• Economic outlook
• Policy reform
• The Value of Planning – Key Instruments
• Market Shaping
• Market Regulation
• Market Stimulus
• Capacity Building
• Conclusions
Economic Value of Planning4
Economic and Policy Context
Economic Value of Planning5
After a turbulent few years, the economy seems to be 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
Economic Value of Planning6
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 London and SE leading the way
Economic Value of Planning7
With a key reliance upon certain sectors for growth, including construction and professional services
1.6
1.6
1.1
0.0
2.1
-0.6
1.9
1.7
1.6
-0.3
2.6
1.4
4.4
-0.2
-0.5
1.0
1.4
-2.4
0.2
0.2
-0.7
2.3
-1.8
0.3
-0.9
1.6
0.4
2.0
2.9
-3.6
3.3
1.7
0.7
-1.4
2.4
-2.5
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
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.
8
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
Economic Value of Planning9
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
Economic Value of Planning10
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
Economic Value of Planning11
1. Market Shaping
Economic Value of Planning12
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
Economic Value of Planning13
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
Economic Value of Planning14
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
Confid
ence in
a lo
catio
n a
s a
pla
ce
to d
o b
usin
ess
Making a place ‘open for business’: What drives investment decisions?
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
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 cars
4,594 workers
2013480,485 cars
5,462 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
sector
An additive approach to
manufacturing
Open, innovative economy
craves proximity and
integration
Cambridge Life Sciences & Healthcare cluster
Media City Salford
15
Economic Value of Planning
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
0
5
10
15
20
25
2002 2012
Non-food Retail spend Leisure
% 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.
16
Economic Value of Planning17
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
Economic Value of Planning18
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
Economic Value of Planning19
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
Economic Value of Planning20
Market Shaping: Discussion Topics
1) Are current business needs and key economic development
priorities for your local area effectively reflected in current plans?
2) How well does the LEP interface with plan-making?
3) Does your plan and evidence base reflect recent economic
change and help your area respond to economic opportunities as
they arise in future?
4) Does your authority’s Local Plan present clear messages to the
market about the place ‘offer’ to business?
5) Are there locations where specific/area-based plans could help
unlock economic potential?
Economic Value of Planning21
2. Market Regulation
Economic Value of Planning22
Market Regulation: The Theory
• Regulatory instruments are those that seek to compel, manage or
eradicate certain activities, whereby 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
Economic Value of Planning23
Market Regulation: Practical Examples and Strategies
• #1 – Discretionary and 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
Economic Value of Planning24
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
Economic Value of Planning25
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
Econ
om
ic V
alu
e (J
obs / G
VA
/ Ta
xe
s)
Time
Yr 2Yr 10
Net additional benefit
Economic Value of Planning26
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
Economic Value of Planning27
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)
Economic Value of Planning28
Market Regulation: Discussion Topics
1) How significant is the issue of economic growth when
development proposals are considered within your authority?
• Plan-making
• Determining applications
• Informal advice
2) To what extent are the economic benefits of proposals conveyed
to you as a decision maker?
3) What are the pros and cons of discretionary vs pre-defined
regulations)?
4) Does your authority use planning to regulate markets in other
ways?
Economic Value of Planning29
3. Market Stimulus
Economic Value of Planning30
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
Economic Value of Planning31
Market Stimulus: Practical Examples and Strategies
• #1 - Direct state actions
• Proactively making suitable land available for development in the
face of market failure, particularly where physical, infrastructure or
ownership constraints present significant barriers to development
• Principle of bringing land up to a point at which the private sector
will invest, by undertaking measures such as land
decontamination, landscaping and infrastructure provision
• Most recently channelled through Local Enterprise Partnerships as
part of Growth Deal funding packages
• Focused on enabling infrastructure
• Greater role for Development Corporations / Special Purpose
Vehicles?
Economic Value of Planning32
Market Stimulus: Practical Examples and Strategies
• #2 - Price-adjusting actions
• Direct public subsidy to encourage private-sector development
• in particular locations, such as regeneration/declining areas, or
• of particular types, such as affordable housing or small
industrial units.
• Development grants, tax incentives/bonuses that provide the
minimum additional sum needed to turn financially unattractive, but
desirable, developments into attractive ones.
• Less common today due to State Aid issues and desire among
government agencies to switch development support from a
subsidy to investment model
• Money may not need to be spent to be effective
Economic Value of Planning33
Market Stimulus: Practical Examples and Strategies
• #3 - Risk-reducing actions
• Actions that reduce perceived risks and build confidence in
regeneration areas can provide an important development
stimulus.
Providing accurate market information (for example on opportunities associated with
regeneration areas)
Ensuring policy certainty and stability (for example creating confidence through a
Masterplan or development framework)
Demonstration projects and environmental improvements to generate confidence to
the market
Place management, such as Town Centre Management and Business Improvement
Districts can reduce risk through collective commitment to the effective management
and enhancement of an area as a whole.
Economic Value of Planning34
Market Stimulus: Practical Examples and Strategies
• # 4 - Capital-raising actions
• Providing or facilitating access to development finance, where
private sector capital is either not available or needs to be
reinforced in some way.
• e.g loan guarantees to support borrowing for projects that might
otherwise be considered high risk, and thus attract a viability-
crushing high interest rate.
Economic Value of Planning35
• Application of market stimulus needs to be targeted to reflect outputs
sought and market circumstances (is there latent demand?)
Market Stimulus: Practical Examples and Strategies
Economic Value of Planning36
Market Stimulus: Discussion Topics
1) Are there good examples of how your authority has been trying to
stimulate economic development?
2) What kinds of market failure have they been trying to address?
3) How effective have they been? How long did they take to show
success?
4) What are the barriers to local authorities implementing market
stimulus and how can they be overcome?
Economic Value of Planning37
4. Capacity Building
Economic Value of Planning38
Capacity Building: The Theory
• Often an ethereal concept
• Capacity building enables actors to operate more effectively on an
individual and collective basis
• Planning has a key role to play in producing and sharing information
and evidence, for example about real estate markets, trends and
opportunities
• Although identified as a separate ‘policy instrument’, capacity
building inevitably has the opportunity to support market shaping,
regulation and stimulus
Economic Value of Planning39
Capacity Building: Practical Examples
• #1 - Market-shaping cultures, mindsets and ideas
• Looking afresh at cultural perspectives, mindsets, or ways of thinking. Enhancing receptivity to new ideas
• Helping planners visualise their true task:
• making places not just plans
• achieving desirable change as well as resisting undesirable change
• Means cultural shift for planners to see themselves as active participants in development, communicating vision and championing innovation, rather than external controllers of development (source: RTPI)
• Challenges in an era of resource constraints
• Those in the private sector need to understand policy drivers
Economic Value of Planning40
Capacity Building: Practical Examples
• #1 - Market-shaping cultures, mindsets and ideas
• Planning positively reflects a state of mind
• Giving appropriate value to growth and jobs?
• Looking for solutions as well as identifying barriers?
• ‘Opportunity and risk’, not ‘predict and provide’
- ‘Objectively Assessed Need’
• Helping decision-makers understand the economic side of the
equation:
• Planning balance
• Sustainable development
• Financial considerations
Economic Value of Planning41
Capacity Building: Practical Examples
• Plan positively for niche sectors and ‘special cases’ (such as airports, theme parks, motor racing circuits etc)
• These may be a cluster of businesses/economic activities that:
• aren’t significant in scale or value
• may be seen to generate problems, or
• don’t align well with local planning policy
• (May not even be strictly legal)
• Rather than ignoring these niche activities, can planning embrace them to think creatively about how their value and benefits could be harnessed / maximised:
• Recognise the important and valuable role they may play (jobs, income, expenditure, infrastructure and public services)?
• Incorporate into local policy, to ensure they receive the status and recognition needed?
• Use growth to help ameliorate their impacts?
Economic Value of Planning42
Capacity Building: Practical Examples
• #2 - Market-rich information and knowledge
• Creating better places requires information and knowledge about place quality and how it can be influenced through development
• Public sector drivers significant investment decisions simply by providing the data upon which decisions are made
• Information vacuum = uncertainty and risks
• Better market information (e.g. property market intelligence) can help planners, landowners and developers understand how ‘windows of development opportunity’ open and close unevenly between places
• create the confidence to take advantage of opportunities
• Engaging (through evidence preparation and generally) can encourage better understanding of the motives and behaviour of private-sector
• recognise which landowners, developers and investors are most likely to share policy agendas
• Help support framework for interventions where necessary
Economic Value of Planning43
Capacity Building: Practical Examples
• #3 - Market-rooted networks
• Enhancing relations so that Council planners are well connected
with other professionals in the development industry
• Recognising where power lies, but see benefits in mutual learning
and sharing of experience between the public, private and voluntary
sectors
• break down barriers
• overcoming potential distrust
• Significant (and low cost) networking opportunities exist, particularly
in and around cities. Are your planning teams taking advantage of
them?
Economic Value of Planning44
Capacity Building: Practical Examples
• #4 - Market-relevant skills and capabilities
• Human capital - enhancing the skills and abilities of key individuals
and organisations
• Examples:
• Helping economic development, housing, highways etc officers
understand planning (and vice versa)
• Development economics and viability - enable planners to be
able to negotiate financially on level terms with developers.
Economic Value of Planning45
Capacity Building: Practical Examples
• Securing positive planning through the duty to co-operate
• Healthy local competition between places?
• Or a race to the bottom in pursuit of growth?
• Functional economic and market areas (requirement of NPPF/PPG)
• Recognising:
• Different roles of places within business and labour market areas
• Flexibility and the scope for places to compete, as sectors change and business operations consolidate, often with a pan-regional or national horizon
Economic Value of Planning46
Capacity Building: Discussion Topics
1) Do you see differences in planning ‘culture’ within and between
Councils? How does this effect the approach to economic growth?
2) How does your council gather and use market intelligence?
3) To what extent are local stakeholders engaged within the planning
process? Could this be enhanced?
4) Are their any gaps in the skills and capabilities of your teams to
address economic development issues in your area?
Economic Value of Planning47
Conclusions
Economic Value of Planning48
Conclusions
• Positive signs that the economic recovery is gaining 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
Economic Value of Planning4949
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 N1 9RL
© Nathaniel Lichfield & Partners Ltd 2011. All rights reserved.