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A new approach for tackling urban decline

Greg McGill

There can be little doubt that the quality of Western urban life is declining. Whether we live in towns, cities or villages it is becoming increasingly obvious that our social, cultural and economic way of life is not what it used to be. For many years we have found that what was once taken for granted is either no longer available or provided in a more restricted and less convenient way.

The good life means living where all our needs associated with home, work and play can easily be met and where there is a variety of social, cultural, leisure and other activities conveniently available. These should yield an urban fabric of not just houses, shops, offices and industrial premises but also meeting places (like pubs and restaurants), parks, gardens and allotments, places of religion, entertainment centres (like funfairs and theatres), public transport facilities, sports facilities, medical and emergency services and much more. Variety is the key: but, in terms of quality, it should not depend simply on such a mix of uses. Significantly it should also encompass broader human diversity, providing opportunity for social intercourse, be contained within a quality architecture (both old and new) and, most important of all, be arranged so that all of these interests and activities are easily accessible, either by walking or by efficient, effective and cheap public transport. This is what urban living should be about.

In reality, most of us live a sub-urban existence where many of the facilities and services are not so convenient and, unfortunately, are becoming less so. Many of us are aware of shops, pubs and post offices closing down but not necessarily of the continuing nature of this process. For example, in England, according to the Office of National Statistics, between 1994 and 2001 around 37% of independent shops selling food, tobacco and beverages closed for good and since then many more have followed. It’s also easy to forget that over the last 15 years there has been an average annual decline of 2-3% of post offices where, in 2001 alone, Britain lost 547 of these vitally important community institutions. Early in 2008 it was announced that a further 2500 were to go and there were fears that 1000’s more would follow in the recession until the government stepped in.

Then there are the other services and facilities that have been lost over the years such as school playing fields sold to housing: where increasing child obesity appears to be one consequence of this. Other examples abound relating to all manner of services-such as the sale of allotments and the closure of town-centre fire stations and local hospitals, frequently making public services less accessible when we need them. What has been so disappointing is that such consequences took second place behind the need for public and other organisations to ‘consolidate their resources’ (ie save money) in order to balance budgets.

The other disappointment is that the above losses occurred in the good times before the recession. Since then, of course, we have witnessed a collapse of the construction industry; the collapse of banking institutions, the loss of many businesses, both large and small, and a significant rise in unemployment. What was, relatively speaking, a continuing gradual reduction in the availability of accessible and necessary services and facilities has, and is, becoming far worse. The recession is simply accelerating the decline in the quality of urban life. So what is the option for a better outcome?

In seeking to answer this question it would be easy to blame the credit crunch brought about by irresponsible over-lending followed by the chronic under-supply of money. Certainly this has been a major factor but we should not forget that the loss of goods and services started long before the recession indicating that we should expand our investigation. What we should do is try to find a common cause linking the diverse range of matters covering the loss of goods and services, job losses, environmental impact and much more.

Fortunately, there is one factor. Accessibility and convenience provide the key to the urban good life because they indicate that we are all totally dependent on what is provided and where it is located; and land is the common denominator. What we should concentrate on, therefore, are the matters which influence how land is used.

There are, of course, many such influences. They include the size and distribution of the population, the creation and distribution of wealth and the regulatory systems (or lack of) that are adopted by governments where deregulation, privatisation and town planning spring to mind. But land use is also influenced by other matters such as globalisation and taxation which are more influential than many people realise. In their different ways all of these matters affect the demand for and supply of land – and the use to which, subsequently, it is put.

In respect of demand the starting point must be people. ‘Communities’ is a current buzz word of government. It’s as if all will be solved if local communities can be created and nurtured. But globalisation and deregulation undermine the very essence of community because of the ease with which people and money can now move freely around the world. Both are drawn to attractive and accessible parts of individual countries (eg in England - London, Cornwall and the Cotswolds) and shy away from the already really bad, run-down areas. On the one hand local people are priced out of the attractive areas and have to move elsewhere to find jobs and housing. On the other, people who are desperate to leave the ‘sink’ estates and ‘rust belts’ are unable to do so. The point is that the demand for land differs enormously in different localities, with serious consequences for the quality of life because it affects the availability of goods, services and facilities that people need. This is true in both the more popular and less popular areas.

Another important factor affecting the demand for land is the way our economies work. In broad terms, because all life is totally dependent on land and because it has no cost of production (it’s been around for millions of years) the returns to land, known as rent in economic terms, or land values to most of us, are a ‘surplus’ over production costs. What this means is that they arise simply from the demand for the privilege of using land and are paid irrespective of what is produced or what buildings are constructed on it. In reality land is the source of all wealth because everything originates from it, but what is so important, and which is so often forgotten, is that the returns to land must come first, that is, they must be paid before wages and bonuses, before goods are produced, before houses are built and before services and facilities are provided. Thus whoever controls the land controls production, and, significantly, the more costly land becomes, the less money there is for everything else. This includes goods, wages and services. Landowners are the ones who gain but at the expense of society as a whole. This is a fact that is all too frequently overlooked.

For some, in recognising that land is important, the answer has been to promote and support charges on development. In the UK, since 1947, this has included the development charge, betterment levy and development land tax with planning obligations currently in favour and community infrastructure levy being proposed. But all these approaches are flawed by the fact that they relate solely to development (eg the construction of houses). Being a charge that is only applied when buildings are proposed it has the effect of diminishing the supply of buildings, either by withdrawal or postponement, because, as every economist knows, if you introduce or increase charges on the production of goods while other things remain equal, you decrease the supply.

But this diminution of supply cannot create an equal diminution in demand with the result that the price of both existing and proposed property can only go up. It does so by the simple fact that there are two factors of production incorporated into the value of any real estate property. One is land on which all property is built and which is fixed in supply and created by the demands of the community as a whole. The other is capital, that is, the buildings and other structures that are built or proposed on it and which are created by the owner or developer. What is overlooked is that the value of any property is made up of these two factors of production each of which reacts differently to changes in demand and supply. For example, a charge on land creates an incentive to make better use of it whilst a charge on property (or development) discourages improvements or additions.

The situation, however, is made worse because the systems of taxes that operate in countries such as the UK and US (income taxes, capital taxes, goods taxes etc) almost exclusively focus on production and the productive forces in society rather than the unproductive forces - most noticeably land. Admittedly taxes such as business rates and, in the UK, Council Tax, include a land element, but these charges apply primarily to buildings and not the ground underneath. Therefore, like all other taxes, they add to the costs of production. Applying to what we produce, they have to be absorbed in some way, usually in the form of higher prices. Charges on land, on the other hand, have no such effect because, being the natural resource, it has no cost of production. It simply exists.

As a result, two serious consequences arise for the quality of urban life. One is that current taxes are passed on in the form of higher prices and the other is that they foster speculation in land. This increases land values which encourages greed which increases demand by those who can afford to pay which sets in train a vicious circle whereby this fiscal mismanagement encourages further greed which in turn encourages property prices to rise further. What is more, globalisation makes things worse because of the ease with which people and money can now be transferred between countries; it increases demand in the more desirable countries and parts of countries thereby exacerbating the situation. In short, this whole process is one of the most unsustainable things societies can do.

We are, however, in a recession, which has the effect of diverting attention to more immediate matters such as the creation of jobs and where the money is to come from. But if we think this through for a moment, the recession was primarily caused by over-lending, either for the purchase of property or where property formed the equity for further borrowing. In other words, the credit crunch and recession are, in part, the result of high property prices which were facilitated by the existing system of taxation. It actually (and actively) encouraged this speculation which helped bring about the credit crunch and recession! 

Thus, in order to get back to the good life and better urban living, the answer would seem obvious. Alter the system of taxation away from the productive forces in society, and on to the one factor that has no cost of production, namely land. This would reduce speculation in land which would lead to a whole range of benefits. First and foremost, it would reduce demand and hence the cost of land which, in turn, would encourage more households and businesses to purchase property. It would lead to a more efficient and more effective use of land and be a real driver for urban regeneration. It would create a positive incentive to renew, rebuild or reuse property. It would also mean that more money could be made available for investment, infrastructure and the production of other goods and services. Environmentally, it would help reduce the rate of urban sprawl, lessen the need to travel and help to reduce atmospheric pollution. In addition it would support small businesses, help create greater local diversity and help reduce inequality. In short, it would foster urban living, reduce pressures on the environment and help bring back more of the good life. It would also help us get out of the recession.

© Greg McGill

December 2008

Greg McGill lives in West Berkshire, England and his qualifications,  are BSc (Hons) in Town and Country Planning, MSc (Dist) in Property Development and Investment, FRTPI, FRICS and FRSA. He gained his fellowship of the RTPI by 'advancing the cause of town planning'