Finance Question - The Economics of Property & Construction

Contents

1. The structure of urban land use 1.1 Location decisions of firms, households and government: summary 1.2 Observed patterns of land use within an urban area 1.3 Urban land use decisions

2. Theories of urban growth 2.1 The economic base theory 2.2 Input–output analysis 2.3 The Keynesian model 2.4 Conclusions

3. Optimum city size 3.1 Advantages of urbanisation 3.2 Disadvantages of urbanisation 3.3 The optimum city size 3.4 The problem of ‘overspill’

4. Green belts

5. New towns 5.1 Problems of new towns

6. Expanded towns 6.1 The future of overspill

© The College of Estate Management 2008

Paper P0551V3-0

Urban structure

Urban structure Paper 0551 Page 3

1 The structure of urban land use

Urban land use is determined by decisions made by firms, households and government (primarily at local authority level). Those responsible for policy in shops, offices or factories have, on occasions, to decide whether they are going to expand, and if so, whether they wish to move or redevelop on an existing site.

Moreover, in a healthy economy new firms are continually being started, especially in small-scale manufacturing. Where they set up will depend on their requirements and on the available opportunities.

Similarly, households make decisions on where they will buy or rent housing: when enough people decide to move in one particular direction (for example to the suburbs) this can profoundly affect the character of urban land use.

Finally, local authorities influence land use in various ways: by the control of development, by the siting of roads, by transport policy in general, by policy on council housing and by ‘comprehensive redevelopment’.

For those types of real property for which a market system operates, the pattern of land use will be determined by decisions operating through prices. Land will (in the end) be transferred to the user who is prepared to pay the highest rent or price, unless this is prevented by government intervention such as the need for planning permission, density regulations, zoning and rent control.

This process also assumes that knowledge of the market by buyers and sellers is sufficient to provide competition. In practice, knowledge is never perfect, but it is rarely so limited as to affect land use markedly. There is a strong tendency for each parcel of land in an urban area to be used for its ‘highest and best’ use, that is, its most profitable use in terms of money income or of the amenity enjoyed by an owner- occupier.

The chief consideration of firms in determining their locations is accessibility. ‘Accessibility’ is a term used to indicate the advantages of particular locations. Accessibility in relation to business land use is concerned with nearness to transport facilities, employees, customers and service facilities (general accessibility). Some businesses may also need to be located in close proximity to ‘like activities’ to gain advantages arising out of the economies of agglomeration (special accessibility). The results will be either the clustering of similar uses – stockbrokers around the Stock Exchange, doctors in Harley Street, diamond merchants in Hatton Garden, and lawyers near the Law Courts – or the repulsion of unlike uses, for instance shopping facilities and heavy industry.

Residential land use is also affected by accessibility. The utility of various sites depends on monetary considerations such as travelling costs to work, shops, schools and recreational facilities, and non-monetary considerations such as fresh air, space, neighbours and peace and quiet.

For both business and residential use, the greater the accessibility (both general and special), the greater the value. Therefore the pattern of urban accessibility will produce a pattern of urban land use in which will be reflected the pattern of urban land values.

1.1 Location decisions of firms, households and government: summary

Urban structure Paper 0551 Page 4

There is also a relationship between the pattern of land use, land values and the intensity of utilisation. There will be the greatest demand for those sites with the greatest relative advantage. This may make it more profitable to develop a site more intensively. Those users who can use a site the most intensively will be able to pay the highest rent or price. But at any one time, adjustment may not be complete. One can therefore have changes in the way buildings are used; for example ground floors may be used intensively as shops, while upper storeys are used less intensively because of a change in shopping and office-using patterns.

1.2 Observed patterns of land use within an urban area Most urban areas have four different use groups: the central business area, a zone in transition, a suburban area, and a rural-urban fringe.

1.2.1 The central business area This is the optimum location for many economic activities, being the focus of intra- city transport and having the greatest accessibility. Competition for sites and uses produces peak land values and the greatest intensity of development.

As the city grows, the central area expands at first intensively, not expansively – and becomes a smaller proportion of the total urban area. Retailing often becomes separated from office use, although offices generate demand for retail activities. Services such as restaurants and banks are ubiquitous. Shops and offices tend to be separated from the entertainment area in large cities, although boundaries of use are blurred. The boundary of the central business area itself is also difficult to distinguish, for it usually merges imperceptibly into light industrial and residential activities.

1.2.2 The zone in transition This zone contains a mixture of land uses. Apart from a few high-income dwellings (such as Belgravia in London), residential uses are usually low-income multi-family dwellings (decaying houses of the rich of yesteryear) or local authority housing. Population growth results in the conversion of large houses into flats and letting rooms. Business uses consist of warehouses and light manufacturing. The easier and cheaper it is to convert, the longer redevelopment will be delayed; rising capital values outstrip increasing site values. When one building in a street is converted, it makes the future of other buildings in their original use uncertain.

With the conversion to a lower use (but higher overall capital value) there is more extensive use, and probably less care is taken with maintenance and repairs. The transition zone becomes a decaying area. Before redevelopment is profitable, speculators buy buildings, let them for a lower use, and anticipate an eventual redevelopment profit – equal to the difference between a high site value and a low current use capital value. Slums grow and property deteriorates until redevelopment occurs.

But redevelopment may be frustrated by public policy. Even if site values exceed capital values, redevelopment may be restricted by rent control and security of tenure, density controls, government control over commercial and industrial development, and the failure of developers to secure planning permission.

1.2.3 The suburban area Generally this has lower value than zones (1) and (2). Residential uses at moderate or low densities predominate, although development is within reach of urban attractions and employment. Clustering takes place near rail and road services, and there is some district segregation by socio-economic class. There will also be a scattering of activities such as schools, surgeries, churches and public houses.

Urban structure Paper 0551 Page 5

Shops are concentrated in suburban and neighbourhood centres or dispersed along main roads. Office development is increasingly taking place, sometimes creating ‘satellite’ business centres (Croydon in Greater London, for example). Industry located in the suburbs usually finds expansion easier than in more central sites, yet benefits from transport links to the urban market. Open spaces such as parks, golf courses, racecourses, allotments and cemeteries abound, often occupying sites between radial routeways.

1.2.4 The rural–urban fringe The influence of the city on land use extends far beyond the built-up area. ‘Rurban’ use consists of farming (particularly dairying and market gardening) for the urban area, and residential use for the more distant commuter.

1.3 Urban land use decisions Every user of business land wants the most profitable location. This depends upon the costs of access to factor inputs (raw materials, labour, etc.) as compared with the costs of access to markets. Sometimes it is cheaper to go to factors of production and to transport the finished product to the market, and sometimes vice versa. The decision will eventually hinge on the cost of a site, since other industries may be in a better position to compete for the land.

Since the entrepreneur in manufacturing industry is much more concerned with the selection of the town or city which offers the greatest overall advantages than with which part of any one urban area is ideally suited for his activity, the following analysis will confine itself to non-manufacturing uses.

1.3.1 Shops The types of goods influence location. Convenience goods such as groceries, fruit and vegetables, confectionery, tobacco and newspapers and hardware are purchased frequently and at fairly regular intervals. Location should be close to either customers’ homes or their place of work. The best sites are on major roads, on corners or near railway stations. Complementarity causes the clustering of convenience shops into minor centres.

Other goods such as soft furnishing, clothing, radios and televisions and CDs are not purchased so frequently and so require a larger consuming hinterland. Such shops, sometimes known as ‘shopping’ shops, are found where transport routes converge, forming the main shopping areas. They are strongly competitive with other commercial users. The character and value of shopping centres reflect purchasing power. Contrast, for example, Oxford Street with Clapham Junction.

Speciality goods consist of furniture, jewellery, musical instruments, furs, etc. They are bought still less frequently and less regularly. Thus speciality shops depend upon an even wider hinterland and a higher purchasing power. Much complementarity of location can be expected.

Within an urban area there is a strong correlation between accessibility to a large market, the type of shop, sales turnovers, shop rents and the intensity of development. General accessibility and turnovers, rents and intensity diminish outwards from the central business area.

Even within the central business area (and within some of the larger suburban centres) there is a correlation between rents per square foot and distance from the point(s) of greatest accessibility and highest land values. On the one hand, department stores and other key traders (Woolworths, Marks and Spencer, and Boots) occupy the most accessible and valuable locations, have the highest sales turnovers and offer the greatest intensity of shopping. On the other hand, furniture and grocery stores are on the periphery of the centre and possess the opposite characteristics.

Urban structure Paper 0551 Page 6

Figure 1 shows a hypothetical rent gradient from the point of maximum accessibility and highest land values to the fringe of the central business district.

The precise location of shops depends largely upon the flow and character of pedestrian traffic, the competition from and nature of adjacent development and the availability of vacant sites on the ‘right side of the street’ or on a corner.

The development of out-of-town shopping centres disturbs the usual correlation between accessibility and value. For out-of-town centres to be viable, accessibility must be high, yet values and sales turnovers per square foot and intensity of development are low compared with central business areas. Apart from accessibility (proximity to ring-roads being beneficial), out-of-town centres depend upon there being a large car-owning population, a large proportion of women working, the need to reduce shopping to one-stop buying, the availability of low-priced sites for expansion and the provision of car parks, and town planning permission being forthcoming. The last may depend upon a lack of anxiety expressed by town centre retail interests, as well as guidelines from central government.

1.3.2 Offices Whereas the siting of shops may mean the difference between business success and failure, office siting is somewhat more flexible – indeed, general location may be more important than the actual site. Both general accessibility (nearness to transport facilities, employees, customers and commercial facilities) and special accessibility (proximity to linked activities) are important.

Offices attached to factories are subject to the broad influences that affect industrial location, but offices not attached to industrial premises are sited according to their general use characteristics. Head offices of large commercial and industrial firms usually occupy central sites, being able to afford the highest rents.

The offices of the headquarters of professional bodies require fairly central locations, yet they need not be as central as those of large firms. General, and to some extent special, accessibility is not unimportant. Sites in historic squares or close to parks are favoured – usually being at lower rents than those in the commercial centre, yet offering both a prestige address and an image of ‘respectability’.

FIGURE 1

Urban structure Paper 0551 Page 7

Branch offices of commercial and professional firms favour locations close to a residential population, the high streets of small towns and suburbs being popular. Except for estate agencies, such offices can occupy rooms above shops, and tend to agglomerate around railway stations and bus termini.

Local and central government offices tend to occupy less valuable sites on the periphery of the central business area. They may be sited in more central and prominent positions when a town centre redevelopment scheme has been undertaken.

There are certain advantages in locating offices in the same part of the central business area as shoppers use. Offices may make use of valuable space above shops, thereby maximising values. Shopping space above the third and fourth storeys is rarely viable in relation to central urban rents. Also, offices increase retail sales turnover. Retailers may provide certain services for offices: stationery, business machines and cafe facilities, for instance. But there are also advantages in locating offices in a separate central zone where there may be less noise, possibly less pollution, and more open space for car parking and recreation. Thus there has been a recent tendency for many office uses to move out from central areas (general administration, routine accounts and records, for example) to suburban locations, such as Croydon.

1.3.3 Residential accommodation Housing represents the largest use of urban land. There is a great variety of types, but redevelopment takes place relatively slowly compared with other uses. Except for occasional very high-income and local authority housing, accommodation is forced out of central areas by the expansion of business uses.

There is a relationship between personal incomes, place of work, and residence. Low- income housing has been traditionally tied to place of work owing to the need for the availability of labour supply and low travelling costs. Initially, rent control and the building of local authority housing were influenced by this requirement. In the case of higher-income housing there is a wider choice between the existing stock of houses and newer, more expansive dwellings. Residents can afford to travel further and are less dependent upon public transport. Prices fall as distance from the central business area increases.

The remaining high-income housing in central areas is of high value – the result of competition with commercial uses. ‘Upper-class’ residential areas may emerge (for example, Belgravia and Mayfair in London). Middle-income housing is more intensively developed than upper-class housing, area for area, suburban semi- detached dwellings being the rule. Immigrants tend to congregate together in distinct areas within most large cities.

Urban structure Paper 0551 Page 8

2 Theories of urban growth Cities begin for many reasons: for defence; as places for royal courts; as political centres; as religious centres; and for economic purposes. Whatever the initial cause, economic forces reinforce the original impetus. Thus over time some cities grow, others decline.

Whilst city growth may be affected by other factors, such as the natural rate of population increase, migration or religious tolerance (or lack of it), analysts can apply three approaches.

2.1 The economic base theory This theory is based on the hypothesis that the size of an urban area depends on the amount of goods and services supplied to outsiders, i.e. ‘exports’; with an increased demand from outside, there is increased growth of the urban area. The existence and growth of an urban area are thus dependent upon those activities producing export goods and services. Income is derived from exports, helps to meet the cost of imports, and facilitates the production of goods and services to satisfy local demand (by shops, hairdressers, restaurants, etc.).

The theory distinguishes between basic activities and non-basic activities. The former produce goods and services for outside demand and bring income into the area; the latter produce goods and services for consumption by the inhabitants of the urban area only.

Employment is likewise divided into basic and non-basic categories. Changes in basic : non-basic employment ratios are supposed to indicate the rate of urban growth or decline.

The following ratios can be estimated:

basic employment : non-basic employment basic employment : total employment total employment : total population basic employment : total population.

For example:

In an urban area with 30,000 population and with 10,000 employed (5,000 in basic employment and 5,000 in non-basic employment), the ratios would be as follows:

basic employment : non-basic employment = 1:1

basic employment : total employment = 1:2

total employment : total population = 1:3

basic employment : total population = 1:6

°

°

°

°

Urban structure Paper 0551 Page 9

As long as the relationships of basic employment/total employment, 1:2, and total employment/total population, 1:3, remain constant, an urban area will be in a state of equilibrium. (Generally the higher the initial proportion of basic employees to the total population, the faster the rate of growth of the urban area.) But if the demand for basic activity increases, the equilibrium will be disturbed and adjustments will take place (see Table 1).

The urban population is 30,000 (as above). But there is an increase in demand for basic employees – say by 2,000. The equilibrium ratios will be disturbed, but the equilibrium reasserts itself as additional employees (and population) are drawn into the urban area. Thus the initial increase in basic employment of 2,000 increases the urban population by 12,000 – the result of a consequential increase in non-basic employment, and an overall increase in non-working population. A decrease in basic employment would have the same effect in reverse.

Despite its general value as an explanation of urban growth or decline, the basic/non- basic theory is subject to various criticisms:

a. It is, in practice, very difficult to distinguish between ‘basic’ and ‘non-basic’ employment.

b. The ratios probably change with the growth or decline of the urban area, yet remain in equilibrium. As an urban area grows in size, non-basic activities tend to increase in relative importance.

c. Undue importance is attached to basic activities in determining the magnitude of economic activity in an urban area. The theory argues that non-basic industry is dependent upon basic industries. However, well-developed non- basic industries may attract basic industries, and thus are the most important determinant of that urban area’s level of economic activity.

d. The theory does not take into account the relationship of income and spending on imports; for example, if all the export earnings were spent on imports there would be no extra demand for non-basic goods and services in the area.

TABLE 1 Equilibrium i Disequilibrium Equilibrium ii Initial

numbers Equilibrium ratio to basic employment

New numbers

Disequilibrium ratio to basic employment

New numbers

Equilibrium ratio to basic employment

Basic employees 5,000 1 7,000 1 7,000 1

Non-basic employees 5,000 1 5,000 0.715 7,000 1

Total employees 10,000 2 12,000 1.715 14,000 2

Total population 30,000 6 36,000 5.15 42,000 6

Urban structure Paper 0551 Page 10

2.2 Input–output analysis This approach was particularly advocated by W Isard in 1960 as a means of analysing urban growth. A matrix has to be constructed to show the production and distribution of goods and services relating to an urban area, the nature of the interrelationship between the industries themselves, and the nature of the interrelationships between those industries and other industries outside that urban area.

For each industry it is necessary to know its purchase of inputs (labour, raw materials, components, transport, etc.) from all other industries in the economy (both inside and outside the area). A similar analysis is made for the distribution of the output of industries.

Input–output analysis shows the structural dependence of one industry on all other industries and activities, and allows the chain of repercussions following a change in one industry or activity to be traced through until the adjustments necessary to restore the equilibrium position have been realised.

The weaknesses of the input–output analysis approach are that there may be little indication of why the original changes occur, and that the input–output relationships between industries may be altered by technological change, necessitating a constant revision of the matrix.

2.3 The Keynesian model This is based on a consideration of the major determinants of the level of income in an urban area. Various techniques are used, notably social accounting, showing income, output and expenditure of the area and analysing the flow of goods, services and money between the area and other areas.

The money inflow includes earnings from exports, the earnings of externally employed factors (incomes from abroad), and national government transfer payments and subsidies. If this inflow increases, the effect on the urban economy depends on what proportion of the additional money is spent in the town, i.e. the marginal propensity to consume internally produced goods and services (the MPC).

Money outflows include import expenditure, payment for externally owned factors, and national government taxation in income and spending.

Savings and undistributed profits may or may not be retained for use within the urban area.

Thus, as Figure 2 indicates, urban growth depends on the size of net money inflows and the extent to which they are consumed within the town. The greater the MPC, the greater the multiplier of urban growth.

For example:

The urban multiplier, UM, = 1 1 – MPC

If the MPC = 2 , the UM = 33

If the MPC = 1 , the UM = 1.33.4

Urban structure Paper 0551 Page 11

A principal weakness of the Keynesian approach when applied to urban growth is the lack of statistics available for analysis at a local level. Both the Keynesian approach and the economic basic theory can be criticised on the grounds that neither predicts when a change in causative activities will occur; and neither explains why any activity serving other than a local market chooses to locate in a particular urban area.

2.4 Conclusions The conclusion must be that, although the economic base, input–output and Keynesian models can help to illuminate the economic linkages in urban areas, they do not satisfactorily explain why cities grow or decline. The reasons are probably a complex blend of external economic changes and the extent to which entrepreneurs and local authorities are able and willing to seize opportunities that arise or to create them if they do not. Some cities have declined when their initial employment base (port activity, mining or heavy industry) has declined. Others have responded to the challenge by developing new industries. No theory which ignores the human element and the effect of differing institutions and government policies can be wholly satisfactory.

FIGURE 2

Urban structure Paper 0551 Page 12

Activity 1

1. ‘Highest and best use’ is a phrase often used to mean the most profitable use for a site. State why certain land uses may not be:

a. the highest b. the best c. the most profitable.

2. From web-based property information, find evidence that corner sites for retail command higher rents.

3. In Section 2.1 there are four criticisms of economic base theory. Give an example illustrating each of those criticisms.

4. The MPC of the population of an urban area has a value of 0.75. A reduction in an urban poll tax adds £200 million to the spending power of the population. Calculate the likely effects on the urban economy.

3 The optimum city size 3.1 Advantages of urbanisation A large urban area permits the following:

3.1.1 Specialisation The transport developments of the Industrial Revolution were vital to the process of urbanisation. First, they enabled food to be obtained from distant areas, thereby allowing agricultural labour to be released for urban jobs. Second, by improving the mobility of both goods and services and of factors of production, they extended the market. This allowed greater specialisation both between economic units within the urban area, and between urban areas themselves. For example, where a commodity is demanded by only five out of 1,000 inhabitants, and a demand for 1,000 goods is necessary if a specialist is to be employed, a firm supplying only the urban area requires the population to be 200,000 if the advantages of specialisation are to be obtained.

For the inhabitant, a large urban area allows specialised amenities, such as clubs, churches and cultural societies to develop, and offers a wide range of employment opportunities, shopping outlets, and educational, medical and entertainment facilities.

3.1.2 Large-scale production A city of at least 100,000 inhabitants would be necessary to provide the workforce for a firm employing 12,000 people. Even so a new firm would probably have to import its own highly skilled specialist staff.

As the city grows in size, more highly skilled staff become available, thus attracting other firms and producing further economies of concentration. In this way urban growth feeds itself.

Urban structure Paper 0551 Page 13

3.1.3 Complementarity between activities Activities may be complementary to one another, either vertically (merchanting and financial services), or horizontally (shopping facilities). A large urban area may be necessary to bring such firms together. Vertical complementarity allows greater efficiency, for example manufacturers can often obtain components from local producers, reducing the size of stocks which have to be carried. Horizontal complementarity means that a more complete range of services is available.

Like specialisation, complementarity is a function of the size of the market. The larger the market, the greater is the possibility for producing specialised goods and services and for interaction between firms.

3.1.4 Economies in the use of public services As cities grow, economies of scale occur in the provision of basic public utilities and services, such as water, gas, sewage disposal, libraries, etc. Intra-urban transport facilities also become more extensive, thereby facilitating further growth of the urban area.

3.2 Disadvantages of urbanisation As cities grow in size, diseconomies eventually arise.

3.2.1 Higher transport costs Offices and shops, attracted by central locations offering maximum general and special accessibility, gradually replace residential uses, people being forced to seek housing in the suburbs. Thus while employment increases in the centre, there is an increasing separation of places of work and homes, adding to the cost and inconvenience of commuting. Eventually town centres may lose their long- established functions as ‘marketplaces’ and ‘meeting places’ – the commercial and social hearts of the urban areas.

3.2.2 Increased pollution Pollution as urban areas expand takes various forms – suburban sprawl along the main road and rail routes, the despoliation of the surrounding countryside, the loss of open space for recreation, noise and smoke in the centre, urban decay in the transitional zone as commercial development is anticipated, and overcrowded housing in the centre.

3.2.3 Increased traffic congestion Traffic congestion may eventually result in a fall in central land values (as in some cities of the USA) as accessibility diminishes with the saturation of the transport network.

3.3 The optimum city size The above discussion suggests that while city growth has advantages there is a point beyond which an urban area should not expand. This would be where average costs per head of city growth are at a minimum (Figure 3). Up to this point, economies of growth outweigh the diseconomies. Thereafter, diseconomies are more important.

A more sophisticated approach would consider the marginal costs and marginal benefits of city growth. The optimum size would be where these marginal values are equal – another example of the marginal principle.

Urban structure Paper 0551 Page 14

Nevertheless, although the concept of an optimum city size has influenced the development of ‘new towns’ it suffers from the main weakness of being static in its approach. Optimum city size will vary with transport costs, the level of income (more wealth and leisure will permit more travel to country homes) and building technology (cheaper, more intensive development of sites will reduce urban sprawl). Furthermore, the optimum size of a city will depend upon the functions it performs since it may be an administrative as well as a commercial centre.

Finally, the optimum size of a town will differ according to its relationship with other towns. If, for instance, most specialised functions can be performed by a nearby city, there is little point in the town growing to such a size that it can compete – if, indeed, that growth were possible in competition with the larger city.

3.4 The problem of ‘overspill’ The authorities therefore are faced with two broad types of problem:

1. improving the existing urban environment by dealing with inner city decay, pollution, traffic congestion and poor housing conditions;

2. finding new homes for a growing population.

The two problems are interrelated.

Faced with the problem of finding new homes for a growing population, public authorities have to choose between:

1. Redeveloping the built environment of the central area at higher densities with new road systems. This would be feasible only if large public funds were available for the purpose. Central sites are costly so that the policy for housing and roads would be costly, necessitating subsidies.

2. Developing suburban or new urban communities away from the city.

Although there has been some redevelopment of city centres, the policy is extremely costly, while often the growth of population cannot be provided for except by outward expansion. It is therefore the latter policy which has been favoured over the last thirty years. This approach means that part of the existing population, part of any natural increase and part of any unplanned immigration has to be accommodated outside the existing built area.

FIGURE 3

Urban structure Paper 0551 Page 15

One way to do this is by suburban development, often to higher housing densities. But the problems caused by the suburban sprawl of the inter-war years have now been recognised so that today there is stricter control through the Planning Acts. As a result, part of the existing population, part of any natural increase, and part of any unplanned immigration has had to be ‘exported’ to outside the urban area. This surplus population (preferably with the necessary supporting employment) which has to be transferred is known as overspill.

Thus policy has had three main aspects:

1. green belts – to contain the spread of urban areas;

2. new towns – to settle overspill population in new centres outside the urban area which are planned from the outset both in size and layout;

3. expanded towns – to take surplus population and industry to selected towns, which are within a reasonable distance and able to respond favourably to rapid growth.

4 Green belts Early attempts to limit urban concentration consisted mainly of controlling the density of development. However, this did not prevent urban sprawl through suburbanisation or neighbouring towns merging with one another.

The notion developed, therefore, of establishing a girdle of rural land encircling an expanding urban area when once it had grown to a given size. Such a ‘green belt’ would:

check the further growth of large built-up areas;

prevent ribbon development;

stop neighbouring towns from merging;

preserve a town’s identity and special characteristics, as with Oxford, Cambridge, York, Norwich;

prevent the loss of agricultural land by wasteful urban spread;

provide adequate recreational facilities within the reach of the townsfolk;

combat pollution and preserve the environment generally.

Indeed, a green belt can be seen as a means of shaping the expansion of a city on a regional scale and not just as an attempt to combat the forces making for growth. This it does by reducing employment in the heart of the conurbation by encouraging the growth of towns which, though partly dependent on the city, enjoy their own independence by providing adequate local employment, shopping facilities and entertainment and recreational opportunities for their own inhabitants.

The Town and Country Planning Act 1947 took the establishment of green belts a stage further, for county councils were given powers to designate land. As a result, by 1960 some 6% of England’s land surface was covered by green belt proposals.

Urban structure Paper 0551 Page 16

Over the past 30 years, green belts have succeeded in confining urban sprawl. More than that, they have provided a pleasant environmental background for the development of new towns. Indeed, they have served to concentrate attention on the need to watch future town expansion. Their designation, however, revealed certain defects. These include:

contributing to the spiralling increases in urban land values;

adding to the problem of congestion by forcing development in existing urban centres;

not ensuring that land is put to recreational use or even made accessible to the public;

being all-embracing in the land conserved, often incorporating land having amenity or natural beauty merits and spoil heaps, tips and derelict land alike;

failing to prevent development from bridging the green belts, thereby creating problems for effective village planning.

It could be, therefore, that a more flexible strategy is desirable, for example the release of some land for housing and associated functions, while preserving a number of ‘green lungs’ so that the city can ‘breathe’.

5 New towns Green belts simply limit the outward expansion of large urban areas; the problem of housing the overspill population still remains.

In the 19th century overspill schemes were left to private entrepreneurs, mainly industrial benefactors such as Robert Owen (New Lanark, 1816), George Cadbury (Bournville, 1879) and Thomas Neve (Port Sunlight, 1888). In the 20th century, Ebenezer Howard’s Letchworth (1903) and Welwyn Garden City (1920) were forerunners of the new town programme of the 1940s onwards.

Public policy dates from 1940 with the publication of the Report of the Royal Commission on the Distribution of the Industrial Population (the Barlow Report), and this was followed by the New Towns Act 1946 which provided for the development of new towns. The idea was that such towns should be established as self-contained communities for working and living. The principal aim was that they should relieve the ‘overspill’ housing problem, but some, e.g. Aycliffe and Peterlee, were developed as growth centres for the area.

Under the 1946 New Towns Act the Minister designates the appropriate area and appoints a development corporation which is responsible for creating the capital assets which constitute a town. The development corporations have powers in general (subject to the consent of the Minister) to acquire, by agreement or compulsory purchase, any land or property in the designated areas which is necessary for their purposes, and they may provide housing, commercial and industrial premises, estate roads and other buildings or services essential for the development of towns.

In reality, new town development corporations are statutory speculative builders having the tasks of building a town, attracting customers, selling and letting real estate and services, and showing a return on capital just like any commercial undertaking. Indeed, to encourage the professional and higher-income groups to a new town, the corporation may sell freehold sites on which private enterprise can build individually designed houses.

Urban structure Paper 0551 Page 17

The building of a new town means houses and all the associated developments – shops, churches, roads, parks, factories, clinics, etc. For each 10,000 persons to be housed in a new town it has been estimated that some 525 acres are needed to provide the urban facilities commensurate with modern planning standards. The necessary capital is advanced from central government funds to be repaid over a period of 60 years from the proceeds of the development. The approval of such advances depends on the Minister and the Treasury being satisfied that the projects are financially sound. Since the Minister’s consent is also required for proposed land acquisitions and development, the Minister has strong powers of control. When the corporation has substantially achieved its purpose of creating a balanced community – this should normally take about 15 years – it is wound up and its assets transferred to a central agency, the Commission for New Towns, which is responsible for estate management and any development during the period of consolidation. This has already happened with many of the older new towns, such as Crawley, Hatfield, Hemel Hempstead and Welwyn Garden City. The sources of income from which the capital advances can be recouped are the rents charged on premises erected and the sale of freehold or leasehold sites and properties. The most profitable revenue-earners are the factory sites, the larger houses, the shops, public houses, and similar premises. In many cases the corporation will build the factory or shop and lease to a tenant; in others, the site is leased and the buildings are constructed by private enterprise. Rent income from standard housing is not as profitable as that from other premises; the corporations receive the statutory subsidies for overspill housing and no profit is made on rents of the low-cost housing.

5.1 Problems of new towns The concept of new towns raises problems as regards size and planning. We can consider these under three headings.

5.1.1 What size of new town should be planned? New towns must be large enough to become independent, self-contained, self- supporting communities. With this in mind and taking into account such factors as acceptable internal densities and the proximity of homes to places of work, the town centre, schools and open countryside, the New Towns Committee of 1946 suggested that an upper limit of 50,000 should be placed on the population of a new town. It was on this recommendation that the New Towns Act 1946 designated the first generation of new towns. It has since been realised that a population of only 50,000 is too small. Full social provision, an adequate range of complementary and competitive shops, and a comprehensive choice of employment and employees could barely be obtained in a town with so small a population. Further, the economies of scale in the development and in the production of goods and services could not be fully enjoyed. Only if small new towns were sufficiently close to major cities could their populations benefit from services and facilities not found locally, or commute to a wider range of job opportunities within the larger urban area. But such a development could be contrary to the principle of self-sufficiency. It is not surprising, therefore, that, of the 33 new towns existing in 1978, for only three was the proposed ultimate population below 50,000. The latest generation of new towns – Milton Keynes, Northampton and Peterborough – all had ultimate projected populations ranging from 190,000 to 350,000. But can we specify an ‘optimum size’ for new towns as a whole? In practice, the factors determining the possible size of a new town depend upon its regional setting, as the regional distributions of population, industry, roads, means of transport, public utility services, etc. must have an important influence on the ultimate size of the town. Only a very large new town might expect to compete successfully as a shopping centre against the established retail centres in other urban areas in the region.

Urban structure Paper 0551 Page 18

It is important, therefore, to ensure that a new town is located correctly within the urban hierarchy and not within the commercial and social hinterlands of existing towns of a higher order. Conversely, new town development should not have significant adverse repercussions on lower or similar order towns. It may be difficult to quantify the effects of new development on other towns in the region, but an attempt should be made so that steps can be taken to minimise the adverse effects of disturbing the urban hierarchy.

As regards industrial development, planning must again be in a regional context, both in the short and medium term. Initially, when the new town is still small, it will have to overcome the pulling power of larger established industrial towns. Thus rapid industrialisation is necessary if development programmes are to run to schedule. It must be recognised that only in the long term can a fully integrated industrial structure be achieved within the new town itself.

5.1.2 Can the planned size be achieved? The economic base of a new town will be determined by the amount of non-basic industry, as well as basic industry, that can be attracted to it. As already explained, the income received from exporting the products of manufacturing and service industry will generate further industry to meet the requirements of the local residential population. It would be useful to know what the ratio between basic and non-basic employment will be when the town is developed. If the ratios between basic and non-basic employment, basic and total employment, total employment and total population, and basic employment and total population could be predicted, then a decision could be made on how much basic industry should be encouraged to settle in the town, how much allowance should be made for the growth of the non-basic industries, and what should be the target population.

It should not be assumed that ratios within other similar size towns are appropriate to the new town in question. Other towns may be nearer major cities and so may have fairly low proportions of non-basic employment, relying on the major city for many local needs. New towns may have a relatively high proportion of young persons and young children so it would not be relevant to accept the ratios of total employment to total population of many existing towns of comparable size. There are many other difficulties of using basic:non-basic ratios as a guide to growth.

It is thus not possible to predict accurately the precise population of a new town when fully developed, since it is impossible to know all the factors that might influence the situation in the future. But it ought to be possible to forecast the order of magnitude of the future population of a new town; whether, for example, it will be approximately 200,000 or 350,000.

5.1.3 Why must the land use of the new town be planned in advance? It might be agreed that the size and land use of the new town should be planned to be as flexible as possible, allowing ‘natural’ development in response to the interplay of demand and supply.

The difficulty is, however, that as the town grows, changes in land uses for profit- making purposes in response to changing demand conditions tend to be slow, piecemeal and costly, and bring about such problems as urban blight and twilight areas. One object of town planning is to prevent such problems arising. Also, while private land uses change with time in response to market forces, they do so within a public land use framework, whether such uses have been carefully planned or not.

In general, the planning of new town land uses must be fairly flexible, and based on estimates of minimum and maximum ultimate populations which are not too far apart.

Urban structure Paper 0551 Page 19

6 Expanded towns The Town Development Act 1952 enables larger cities to negotiate with smaller towns for them to provide housing in order to take ‘overspill’ population or to relieve congestion. Although no provision need be made for employment opportunities, the latter would obviously have to be included in a balanced scheme.

Unlike new towns, expanded towns have no development corporation financed by the central government. Administration and finance are almost entirely the concern of the respective local government authorities. Although grants can be made from central funds where appropriate, overspill housing, employment opportunities, public utilities, roads and other communal services have generally had to be planned in a climate of financial stringency, the bulk of the finance coming from the ‘exporting’ and the ‘receiving’ authorities.

Expanded town arrangements are administered by a joint planning committee comprising representatives of the exporting authority, the receiving authority and the county council within whose area the development will take place.

By and large the planning problems of expanded towns are similar to those of new towns. However, there are some differences:

Before designation, expanded towns are usually ‘fully fledged’ urban communities having an established pattern of land use based on the advantages of accessibility. A planned increase in population and economic activities is likely to have a substantially greater impact than on new towns.

Existing towns will be more fully entrenched in the urban hierarchy than most places scheduled as sites for new towns. It is probable that there will therefore be less effect on the pattern of urban hinterlands and upon urban rank, unless overspill activities are on a very large scale.

If towns are sought which have some excess capacity in the existing urban services, the initial cost of providing for overspill would be less than with building a new town where complete urban services have to be provided. Eventually, however, as population expands, new services and roads have to be provided, and this can create problems, for example as regards the cost of acquiring land in the town centre.

With an expanded town the overall responsibility for the scheme remains with the local authorities; each new town involves the setting up of a government- sponsored statutory authority, the development corporation. While the latter is dissolved when the new town development is completed, the expanded town scheme has continuity of administration.

Apart from a possible saving of cost by using existing services of an old town, the overall cost of an expanded town is likely to be higher than that of a new town.

With a new town, the development takes place on virgin land which the corporation buys en bloc. All the profit resulting from the development (including economic rent accruing to land through the provision of communal services) therefore goes to the development corporation, and the scheme can thus pay for itself.

Urban structure Paper 0551 Page 20

In contrast, with an expanded town, the land on the periphery of an existing town is likely to cost more than the virgin land used in a new town, while in the town centre private owners and landlords of shops, houses, etc. are likely to benefit by the increased economic rent as the larger population brings extra demand.

While new towns can draw overspill population and industry from a wide area, expanded town schemes are negotiated between particular local authorities and can thus be tied to limited exporting areas. This tends to restrict the recruitment area for labour and, in consequence, may be a deterrent to the inflow of industry.

6.1 The future of overspill Because of the fall in the rate of increase in the population of the UK, and the increased emphasis on the regeneration of inner city areas (and old industrial areas), new towns are likely to receive less attention in the future than they have done in the post-war period. Existing new towns are likely to be built up slowly to their planned size, but no further new towns are likely to be started in the UK in the foreseeable future.

For the same reasons, there is likely to be less emphasis on formal overspill arrangements. The movement of population out of the central areas of the larger conurbations – especially London – is proceeding much faster than had been expected, and has begun to alarm some local authorities which are losing population. A case can be made that too rapid a rundown of population creates problems, because it is unbalanced, with the younger, more vigorous and more affluent leaving in disproportionate numbers. In any event, the pressures for ‘expanding’ towns and founding new towns have been eased.

This does not mean the end of urban planning but the emphasis is likely to shift from sweeping ‘greenfield’ planning to smaller-scale work in organising the regeneration of old urban areas, improving districts of ‘patchy’ development while retaining existing communities, and allowing small free-standing towns to be set up within the metropolitan green belt.

Activity 2

1. Section 3.3 refers to the optimum city size being explicable by the marginal principle. Draw a diagram showing how this works.

2. Outline why the optimum city size might vary for:

a. different individuals b. different firms.

3. Why do certain large urban areas grow beyond an ‘optimum’ size?

4. Many workers commute from the first new towns built around London to the city. What defects of such new towns does this reveal?

5. Why is it necessary for developing UK new towns such as Milton Keynes, Peterborough and Northampton to advertise extensively in order to attract industrial and commercial firms?