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Office space supply restrictions in Britain: the political economy of market revenge

Cheshire, Paul and Hilber, Christian A. L. (2006) Office space supply restrictions in Britain: the political economy of market revenge. Research papers in environmental and spatial analysis (117). Geography and Environment Department, London School of Economics and Political Science, London, UK. ISBN 0753019779

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Abstract

Office space in Britain is the most expensive in the world. Even in a struggling, medium sized city, like Birmingham, costs are more than 40 percent higher than in Manhattan although construction costs half as much. Taken together with research showing a significant negative net welfare effect of planning constraints in the residential sector, regulatory constraints are the obvious explanation. To investigate this we first explore the meaning of Glaeser et al’s (2005) Regulatory Tax (RT) and then estimate values for 14 British office locations. Even on the most conservative assumptions this shows a very substantial cost of regulation in Britain - orders of magnitude greater than estimates for Manhattan condominiums. Having values going back more than 40 years allows us to investigate the political economy of the regulatory restrictions. Britain has a fiscal disincentive for communities to permit commercial development since business rates are a national tax. In all but two locations, residents control development and their main incentive to allow development is unemployment. The useful exceptions are the City of London and Docklands, controlled by business interests, and, in the City’s case, with a unique fiscal incentive to allow development. The City is also the only office location in Britain where the RT value has fallen over time, seemingly related to an explicit loosening of planning restrictiveness in the 1980s triggered by competition from other locations. Exploiting the cross sectional panel data allows us to test these hypotheses and the results provide strong support.

Item Type: Monograph (Report)
Official URL: http://www.lse.ac.uk/collections/geographyAndEnvir...
Additional Information: © 2006 The Authors
Divisions: Spatial Economics Research Centre
Geography & Environment
Subjects: G Geography. Anthropology. Recreation > G Geography (General)
JEL classification: R - Urban, Rural, and Regional Economics > R5 - Regional Government Analysis > R52 - Land Use and Other Regulations
J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies
H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q1 - Agriculture > Q15 - Land Ownership and Tenure; Land Reform; Land Use; Irrigation
Date Deposited: 10 Oct 2008 12:25
Last Modified: 15 Sep 2023 22:06
URI: http://eprints.lse.ac.uk/id/eprint/13233

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