Gateway to disaster? policy changes, land policy, housing, pensions and regional policy

Massimo A. Allamandola suburbanstudio at
Fri Dec 7 13:08:56 GMT 2007

Gateway to disaster?

7 December 2007

London must decide the direction of the Thames Gateway soon, warns Michael Edwards, or risk a project doomed to failure

The Thames Gateway project poses daunting choices for those with the power to decide on the future development of south-east England. Government and the mayor of London both agree that much of the wider South-east’s growth should be concentrated in the Thames Estuary. They share the intention that London will expand to the east, not to the west, and that the rationality of capitalist growth is the unquestionable way forward. Yet if we try to develop the region using the prevailing orthodoxy, all the signs are that Thames Gateway will be UK regeneration plc’s biggest debacle so far. It does not have to be this way. The new city/region could be a laboratory for innovation in ways of living, ways of building and transforming ecological relationships.

The reality may be somewhere in between but, to dramatise the choices, let us consider the best- and worst-case scenarios by anticipating how the future could unfold.

Worst-case scenario

The cost of making it happen at all — building transport and social infrastructure, as well as subsidies for clean-up of land and for flood protection — is an endless drain on state investment. The 2012 Olympic and Paralympic Games help a bit in this respect because the sheer imperative of being ready on time for the Games permits normal decision-making and consultation to be compressed, and ensures that budgets will be diverted to do roadworks and other bits of infrastructure in the “national interest”. Even that is not enough, however, and much of the infrastructure lags years behind the need.

The growth of the region’s population and income in turn boosts growth of property values in the south of England, leaving some of the more peripheral parts of Britain to struggle. Government statements about regional policy, already very feeble, become even less convincing as state expenditure on the Olympics, and then on urban infrastructure and housing, further overheats the South-east. As house prices and rents are driven up in this way, those on middle or low incomes suffer worsening housing conditions, overcrowding and greater dependence on housing benefits. The bill for housing benefits becomes astronomical.

Private housebuilding firms are cajoled into building thousands of houses a year, but each development serves just a single market segment and income group. The higher ground and fine landscapes get the “executive” homes, the marshes and degraded areas get denser blocks of apartments, euphemistically called “starter homes”, and “affordable” housing.

The housebuilding industry remains profitable, though this is largely because selling prices are growing year after year. Housing in Britain remains poor value for money in European terms, and more than half of what you pay for a dwelling is payment for the scarcity of land, not for the dwelling. Building continues much as before, and a steady influx of workers from eastern Europe cushions the construction sector from the need to modernise itself through training and technical innovation.

Apart from jobs in construction, the economy of the Thames Gateway grows only slowly, so its population remains dependent on long-distance commuting, mainly to central London. There are more trains running, but they still have cattle truck conditions. Stratford, Ebbsfleet (adjoining Bluewater) and Ashford have high-speed, and expensive, services to St Pancras but many areas are only served, at best, by ludicrous extensions of the Docklands Light Railway — in truth just a tram — with dozens of stops between home and work. Anyone who has sat for an hour on the Athens tramway to the southern suburbs, built for the 2004 Olympics, or even commuted from Beckton to Bank, will understand the problem.

Some prestige architecture will decorate this messy picture, with flagship projects here and there. But these are fragments lost in a sea of mediocrity dominated by routine architectural firms commissioned by big development companies and by registered social landlords who have already shown that they often do no better.

“The signs are that Thames Gateway will be UK regeneration plc’s biggest debacle so far”

A lot of money is made, even in a low-grade development of Thames Gateway. Pressure of demand for space in London is so strong that everything sells sooner or later, and property values grow through speculative investment in pursuit of the never-ending boom, through the agglomeration of activity, and because of new infrastructure. But the profits from this are all private — because successive governments have not had the nerve to hold any long-term land ownerships or equity shares. Governments insist on getting “planning gain” contributions out of private developers for social housing, infrastructure and so on, although the yield from this source is reduced because the Treasury has also imposed a blanket planning gain supplement or tariff. These charges are all levied when a development takes place, just when the developers can least afford to pay, long before the trees have grown and before the serious land values have build up. With continuing real growth in property prices, an even higher proportion of the potentially available revenue is foregone for this reason.

In this worst-case scenario, it is always the state and public bodies that come to the rescue, firefighting on service provision and patching the infrastructure. There may be some exemplary water management and local energy generation schemes. These were being promoted hard in 2007 by the deputy mayor and mayor, and figured strongly in the London Plans of the following decade. But such schemes need continuing management to work, and if most of the profits have been given away — some to initial developers and the rest to individual owner-occupiers — these costs are hard to cover.

Best-case scenario

Instead of wallowing in amnesia, Britain’s professions and politicians do a bit of remembering what their predecessors were good at, a bit of learning from foreigners, and a lot of innovation. This is a more optimistic view of what might have been achieved by about 2025.

Thames Gateway develops, but more slowly than in government plans of 2006-07. This is partly because major elements of government and cultural institutions have spread to other regions, partly because other development corridors are evolving: through Watford, Berkhamstead and Tring to Luton, Milton Keynes and Northampton; through Surrey and Sussex to Gatwick; and through east Hertfordshire to Stansted and Cambridge.

London’s old “green belt” plan is being replaced with something more like the “finger” plans of Copenhagen and Stockholm. Almost all those living in the new areas can leave home and walk one way to a good shopping centre and railway station, the other way to green space and allotments, stables or a golf course. The choice between urban and rural situations is over: most people can enjoy both, not just residents of Hampstead, Richmond or Stanmore.

Within these new fingers and in the Gateway all the land has been taken in to the ownership of land development trusts. They are very diverse, but what they have in common is that they retain all the freeholds and grant building leases subject to ground rents which are revised annually in line with market conditions. This means that these collectivities gather about half of the growth in property values, while the owner-occupiers, co-op tenants or other users of land get the other half. It’s a fair exchange because this revenue covers all the costs of infrastructure and services, maintenance of ecological systems, and community services.

The London Plan 2010 put a lid on further office development in and around the centre of London, The British real estate fraternity were initially furious when London’s central growth was capped, but now find there are plenty of good investments in these prospering London suburban nodes, and they are much less volatile than central London, which was all the big investors were interested in until about 2010.

Communities living round King’s Cross, Elephant and Castle, and London Bridge breathed a sigh of relief and got on with life, the threat of displacement and gentrification much reduced.

“A consortium of Stuart Lipton, Ikea and John Lewis dominates the production of modular building components”

Partly because employment growth in central London has been slowed down, more jobs are being created in the suburban centres. There is thus some growth in reverse Ashgate (outwards) commuting, so trains are beginning to be well used in both directions. The massive investment in Crossrail was not needed, and the money has been redirected to a better network of routes linking suburbs using a mix of trains, trams and buses.

But probably the biggest transformation has been in housing. Barratt, Persimmon and their like, whose main skill was managing their land banks and timing developments, have redirected most of their work abroad. In their place, we have a whole new industry based on relatively cheap and plentiful land supply in the UK. Users of land pay over the long run to land development trusts through their ground rents instead of upfront. A consortium of Stuart Lipton, Ikea and John Lewis dominates the production of modular building components so that building enterprises get economies of mass production whether they are big or small, and the streamlined land supply system ensures that sites are available. It is the modernist dream come true, but with a thoroughly post-modern outcome: every dwelling can be different.

So where now?

Thames Gateway is neither bound to succeed nor bound to fail. But it will be hard to make into a great success. It is not the kind of development which the property market, left to itself, would undertake. But in 2007, it looks as though government is determined to impose the project on a reluctant market, aided by its success in securing the 2012 Olympics: the Games helps to keep the speculative housing bubble inflated, and provides patriotic legitimation for state expenditure and for bypassing hard-won democratic processes.

The gainers under that scenario would be those who have been benefiting during recent decades: speculative developers nimble enough to follow the market and withdraw before each downturn, and established owner-occupiers with low levels of debt. The losers are the rest of us: the users of a decidedly second-best urban environment, the tenants of housing and business space, the employers trying to remain viable in a competitive market, and the more indebted owner-occupiers who come to grief when property values take a downward turn or when interest rates increase.

The alternative requires a composite of policy changes, above all in land policy, but also in wider housing, pensions and regional policy. Existing development mechanisms are highly fragmented and seem unlikely to deliver new urbanisation on the scale and of the environmental and social quality we need. The existing housebuilding industry continues to fail because booming demand does not result in booming supply. The industry is fairly well adapted to profitable production in scarcity conditions, with firms preferring to build for luxury and niche markets rather than to innovate in mass supply to meet middle- and low-income demand. Our configuration of regulations, finance, firms and relationships precludes the emergence of an “Easy-Jet” or “Ikea” response to the housing problem. The firms are too busy managing their land development profits to be interested.

With so much of its employment growth in the centre, London has tended to draw its labour force from ever-further afield — from the more remote places where people can afford to live, and to which many Londoners move at the stage of family formation. This kind of growth conflicts with the environmental imperative of reducing the need to travel, and Thames Gateway will need to be very different from the east London, Kent and Essex of the past. People will need to work there as well as live there if we are to avoid further growth of car dependence and irresistible demands for yet more long-haul infrastructure like Crossrail, which is expensive to build and is largely used for inefficient tidal flows.

Most important of the problems posed by the current institutional structure is the challenge of securing resources in the long run for infrastructure, community development, and local environmental management. All three of these elements need sustainable flows of resources, without which there will be nothing exemplary about the Gateway.

At present, we rely on two inadequate mechanisms: the UDC’s revolving funds and the overburdened planning gain agreements under section 106 of the Planning Acts. Both of these instruments make funds available, but do so only at the start of development. The same is true of the planning gain supplement which the government is proposing to add. Planning gain deals are made just when the risks are greatest and developers can least afford to be generous. UDC revolving funds must, by definition, be repaid quickly in order to be available again. We know, however, that urban development produces major surpluses in the long run. The aim must be to secure some of that long-run uplift in value. Even quite a small share in the growth of development value would be much more use than what we can now secure through planning gain.

We used to do this well in Britain, in the private leasehold development of London estates (Bloomsbury, Belgravia etc), and we did it again with the new towns. We need to do it again in Thames Gateway.
Postscript :

This is an extract from an essay by Michael Edwards, Structures for Development in Thames Gateway: Getting Them Right, included in London’s Turning: the Prospect of Thames Gateway, to be published in January.

Michael Edwards is a senior lecturer in the economics of planning at the Bartlett.

Painting From the Greenway by Jock McFadyen

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