matthew spry, nlp - what role can planning play in stimulating economic growth?

Economic Value of Planning

Matthew Spry, Senior Director, NLP

24th February 2015

n @mspry74


What role can planning play in stimulating economic growth?

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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

• 6 offices (London, Newcastle, Cardiff, Manchester, Leeds, Reading)

• 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

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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 and Policy Context


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


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


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


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


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


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


1. Market Shaping


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


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


Market Shaping: Practical Examples and Strategies

Critical factors What can planning do?

People

Proximity to skilled workersLabour productivity & flexibility

Provide adequate scale of housing for work forceSecure development commitment to drive skills and trainingEnsure right type of land / business space is available for different industries to function in areas with access to labour

Place

Quality of life/amenitiesAccessibility/transportInfrastructure Opportunity for development/expansion

Planning policy/development that preserves and promotes quality of place and access to labourPlan pro-actively to meet development and space needs of businessExplore approaches to unlock or bring forward employment space by providing upfront infrastructure to secure investment

Business

Supply chainsCustomers Clusters and competitive advantage

Ensure sufficient employment space is available to accommodate expansion/relocationBoil down regulations that may hinder or constrain competitive advantage / development of sector clustersConsider 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?


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


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


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


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?


2. Market Regulation


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


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 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



• 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 Value (Jobs / G

VA

/ Taxes)

Time

Yr 2Yr 10

Net additional benefit



• 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



• #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)


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?


3. Market Stimulus


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


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?



• #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



• #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.



• # 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.


• Application of market stimulus needs to be targeted to reflect outputs sought and market circumstances (is there latent demand?)



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?


4. Capacity Building


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


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



• #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


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?



• #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



• #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?



• #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.



• 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


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?


Conclusions


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


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.

matthew spry, nlp - what role can planning play in stimulating economic growth?

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