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?

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
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 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.
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

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

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
Confidenceinalocationasaplace
todobusiness
Making a place ‘open for business’: What drives investment decisions?

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
1999
271,157 cars
4,594 workers
2013
480,485 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

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
Planning for a changing retail and leisure economy - spending less in shops but spending more on leisure and experiences.
16

• 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

• #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

• #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
EconomicValue(Jobs/GVA/Taxes)
Time
Yr 2
Yr 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
1) To what extent are the economic benefits of proposals conveyed
to you as a decision maker?
2) What are the pros and cons of discretionary vs pre-defined
regulations)?
3) 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

• 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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