The Impact of Planning on Local Business Rents

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 the first substantive attempt to explore this subject area through an analysis of the impact of planning on business rents. A full structural model of a local property market was developed. It incorporates the planning regime as a key element of the system and it allows for the interaction between property market use sectors. The model formed the basis for the creation of a simplified five-equation 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. However, the results must be much qualified. The study was affected by various limitations relating to data, to the geography upon which the model was based and to its cross-sectional character. Nevertheless, the work makes a contribution to the development of a theoretically robust model for analysing and estimating the effect of planning on the property sector of the local economy.