Changing the shape of Britain is difficult when you have dug yourself into a hole, and there is no clear direction to take. After misguided property investment by American and British banks almost brought the world’s financial system down, it would be silly to rely on freeing up the market or even a revival of smaller enterprises to create the jobs that are needed. Yet what other alternatives are there? The overwhelming challenge of rebuilding our worn out infrastructure and housing stock (or green recovery) should provide the answers, but how do we achieve what previous governments failed to do in what is now a much tougher world climate? There is a backlog of some £500bn to be spent simply on upgrading our power and transport systems over the next 15 years, according to CBI estimates and a McKinsey Global Institute report on Britain’s infrastructure needs, and infrastructure is the key to smarter of more sustainable growth. But where is the money to come from, and who will plan and deliver housing projects that pay for themselves?
Learning from Europe
Instead of simply looking to our past, we can find better models by exploring the growth cities of northern Europe that have achieved much more in recent years, and been less hurt by banking failures. The German economy continues to perform outstandingly not just because of its strong Mittelstand of family firms or investment banks (such as KfW , the State bank for reconstruction) but also because it has many more and larger leading engineering companies, such as Siemens, who work closely with government funded research centres to maintain their technological lead. Thus the old university city of Freiburg has become the ‘solar capital of Europe’ thanks partly to building sustainable urban neighbourhoods on its edges, with the municipality providing cooperative building groups with serviced plots, and some 3,000 people work in the sector. German public authorities advertise a fraction of the contracts the UK does through the European Journal . Similarly the French, who freed up their provincial cities in 1982, and drew up contracts between the central and city governments in 1989, have seen them grow much faster than Paris and the UK, with twice the investment in infrastructure. They built five times the number of tramways, and 10 times the length since 1980. These have helped them create liveable city centres, while providing customers for the nuclear power stations that provide 80 per cent of France’s electricity. Ancient cities like Montpellier (the French equivalent of Oxford or Cambridge) have expanded much faster as knowledge based businesses have grown along the new transport corridors.
Similarly we can learn from Scandinavia how to minimise the waste of natural resources through local energy and waste systems, again thanks to municipal enterprise. Copenhagen has financed its recent metro system from the increase in land value from developing the new town of Orestad, on the line from the airport, and land value taxation ensures that no site goes to waste. Cities in Scandinavia and the Netherlands pride themselves on promoting equality, and good public services that have broken down class divides. They also have much happier families. Part of their success has been due to investing much more in building new and larger homes, rather than simply inflating the price of existing ones. Thus the Dutch VINEX plan (which was their equivalent of our Communities Plan) succeeded in increasing the housing stock by 7.6 per cent between 1976 and 2005, largely in new urban extensions, whereas unfortunately our communities plan stoked land values without building enough of the family homes that were wanted. Dutch housing associations play a much larger role, and though house prices have risen they are still much less than their UK equivalents, despite often having to build on reclaimed land.
A better business model for sustainable development
Having taken many local authority and developer groups over to see what has been achieved, the outstanding lesson has been the greater leadership that municipalities provide. A comparative study of developments in four countries that had achieved what our ecotowns failed to do found surprising similarities in the approach and institutional framework. Northern European cities are built better and faster because there is much greater confidence thanks not to planning freedom, but to clear spatial strategies promoted by entrepreneurial cities as case studies have shown. By deciding what the future shape of cities should be, utilities are able to invest with confidence, creating customers for adding new capacity, such as renewables and (CHP) combined heat and power , as well as for insulating existing homes. Green recovery hits many goals simultaneously.
The greatest cuts in employment in the UK so far have been in construction. There is no chance of a return to ‘business as usual’, with the prospect of falling house prices once interest rates are raised. Even in the good times, the old house-building model (based on volume house builders taking the lead in securing planning permissions for land on which they have options) did not work. As the Callcutt Review on housing delivery showed, and so cannot be expected to work in the foreseeable future. So long as land values underpin their share prices, and there is little holding cost developers will continue to sit on land. Nor despite some promising talk of ‘city deals’ with the core cities, possibly inspired by the French and Dutch contractual agreements, the coalition government has failed to devolve real power over development from the centre, unlike the European success stories URBED has studied. The coalition has also scrapped all the mechanisms that could have helped broker agreement across boundaries. Without providing incentives to take the longer-term and wider view, we seem doomed to retreat into the shells of our homes, awaiting the power cuts and social strife that must surely follow. So a new business model is needed that links development with infrastructure at a city region level, and that supports investment that makes our economy less dependent on imported gas and oil, and creates good jobs.
The winning formula of infrastructure bonds
We could all learn from the ‘wonder’ of the Olympics. The clear lessons from committing the resources needed to transform an area, and train winning teams is that with a deadline and seven years hard work, it is possible to change direction. The shape of London has undoubtedly shifted towards the east thanks to a major injection of infrastructure. As with the Games we need to review where we have most chance of winning, and commit the necessary resources. Pension funds and insurance companies want to invest in projects that out-perform inflation, which is why ‘smarter growth’ should appeal. But they cannot be expected to take the lead. We first need to set up state ‘infrastructure’ banks with the capacity to assess projects on the basis of the commitment of their stakeholders as well as their forecast returns.
This is where public sector banks such as Bank Nederlandsche Gemeenten (BNG) in the Netherlands, the Kommuninvest municipal bank in Sweden, KfW in Germany or the Caisse des Depots in France have proved so valuable. We should not expect central government to make all the strategic decisions on the basis of imperfect information and short-term priorities, or rely on buccaneering banks that go for the highest short-term returns. Instead we should introduce a continental type system for backing strategic projects that make the most of local and regional opportunities, and which would refresh local government in the process. Some authorities, such as in Cambridgeshire, have been inspired by the European approach, but still need government action to open up long-term debt finance to make new communities and urban extensions viable.
The current situation, where we have falling demand and rising unemployment, is the right time to recall what Keynes wrote, and rethink the way we grow our cities and make long-term investments in infrastructure. He memorably said: “But it should be obvious mere abstinence is not enough by itself to build cities or drain fens.”. By issuing municipal bonds for sums of around £100m, we could start to unblock developments and enable firms with growth potential to expand. The bonds need to be underpinned by rising land values as well as rental income from utilities (which calls for changes in valuation practices.) There is a wealth of funds looking for better returns, and an overwhelming discontent with the City of London. Once municipalities start to work across political divides to secure smarter growth, as some like Manchester are starting to do, and we no longer have to rely on government handouts for the latest ministerial brainwave. We can then start restoring our infrastructure, and get people working again on worthwhile projects. The models are plain to see, if we can only summon up the courage to free up our cities and learn from what has worked so well in other European countries.