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'Iconic design' as deadweight loss: rent acquisition by design in the constrained London office market

Cheshire, Paul and Dericks, Gerard (2014) 'Iconic design' as deadweight loss: rent acquisition by design in the constrained London office market. SERC Discussion Papers, SERCDP0154. Spatial Economics Research Centre (SERC), London School of Economics and Political Science, London, UK.

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Identification Number: SERCDP0154

Abstract

Britain’s land use regulation (planning) system imposes very tight restrictions on the supply of office space so creating substantial rents. An unmeasured part of the costs associated with these restrictions likely comes from compliance costs, one form of which could be rent-seeking activity (Krueger, 1974) of a gentlemanly form: employing a ‘trophy architect’ to get ‘more rentable space’ on a given site (Cheshire & Hilber, 2008). This paper finds evidence strongly supportive of this hypothesis. It employs an hedonic approach on a sample of offices sold between 1998 and 2011, defining trophy architects (TAs) as those who had won a major lifetime achievement award. Much of London is covered by absolute height restrictions but outside these areas we show that i) for a given site a building designed by a TA is more valuable, but ii) this only arises because a TA squeezes more space on a given site – an extra 19 stories, increasing the site value by an estimated 130 percent. Planning restrictiveness also varies within London by jurisdiction and the price of space is higher where restrictiveness is tighter. While these effects of trophy architects could be windfall gains to developers, we suggest a more likely interpretation is that they represent the additional but difficult to measure returns demanded for the extra risk and delays imposed by using a TA to try to game the system - hence a form of compliance cost and a deadweight loss associated with England’s planning system.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.spatialeconomics.ac.uk/SERC/publication...
Additional Information: © 2014 The Authors
Subjects: H Social Sciences > HC Economic History and Conditions
JEL classification: H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents
J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies
Q - Agricultural and Natural Resource Economics; Environmental and Ecological Economics > Q1 - Agriculture > Q15 - Land Ownership and Tenure; Land Reform; Land Use; Irrigation
R - Urban, Rural, and Regional Economics > R5 - Regional Government Analysis > R52 - Land Use and Other Regulations
Sets: Departments > Geography and Environment
Research centres and groups > Spatial Economics Research Centre
Date Deposited: 29 Jul 2014 15:14
Last Modified: 29 Jul 2014 15:14
Funders: Economic and Social Research Council, Department for Business, Innovation & Skills (BIS), Welsh Assembly Government
URI: http://eprints.lse.ac.uk/id/eprint/58457

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