Planning regimes and their impacts on local rents and local and national output

Abstract

Despite the pervasiveness of planning intervention in the land and property market, the economic effects of the planning system have been little researched. While there is a growing body of work addressing this issue in the housing sector, similar work considering the business sector is marked only by its absence. The paper describes an initial attempt to explore this subject area and, particularly, to consider the impact of planning on business rents. A full structural model of a local property market was developed. It formed the basis for the creation of a simplified fiveequation system that could be operationalised within extant data constraints. Upon application, a local effect of planning was identified that was consistent with theory. As planning regimes become tighter, the local supply of space decreases. This has a negative effect on local economic activity and a positive effect on local rents. But is the aggregate, net effect of this local planning impact reduced by spatial adjustment? A time series examination of the relationship between planning and economic growth was undertaken to explore this issue. The difference in the size of the specific local and overall national effects of planning suggests that spatial adjustment only partially compensates for the impact of the former. This is an indication that there is not a zero (local) sum to planning and that the planning system may have an impact on the level of economic activity at national level. While the study was affected by various constraints and limitations, the results, taken in the round, suggest that we have developed a theoretically robust, cross-sectional model for analysing and estimating the effect of planning on the property sector of the local economy.