Centre for Cities

A tale of two halves: Cities and the recession

So its official (at least until the revisions anyway) the national economy has grown by 0 per cent this year.  And the 0.3 per cent contraction announced on Friday for Quarter 4 of 2012 has reinvigorated the debate about whether the UK economy will experience an unprecedented triple dip recession. Cities Outlook 2013 published last week by the Centre for Cities shows how this national economic story of no growth played out very differently across our cities. 

Cities Outlook 2013, the annual health check of UK cities shows that there have clearly been two phases to the recession to date.  Some cities felt the impact keenly in the first year (08-09) but stabilised after that and are now recovering.  Others were more moderately affected at the start but began to feel the effects in subsequent years (09-12). Both will be adversely affected if the national economy enters a third phase of recession, with significant implications for future economic growth.

Cities that struggled at the beginning of the recession – like Swindon, Sunderland and Burnley – have seen relatively strong economic growth since. For example, from 2008 to 2009, Swindon felt the effect of the cuts most strongly due to high numbers of job losses in both the private and public sectors.  Yet between 2009 and 2012 the city showed signs of recovery, becoming one of our strongest performing cities. This recovery could now be in danger with the recent news that Honda plan to cut 800 jobs in the city citing weak demand from Europe. 

Other cities, such as Swansea, Bradford and Mansfield saw the reverse.  They were hit less badly at the start of the recession but since 2009 they have felt its effects more keenly than other cities. They have fallen 54, 52 and 51 places in our index respectively between 2009 to 2012, and their current struggles will be further exacerbated should the UK economy slide back into recession in the months ahead.

Centre for Cities consistently calls for more powers to be devolved to cities, so that they can make the difficult decisions about how to spend their budgets in the best interests of their residents and businesses.  For some, it will be about delivering more housing, for others investing in skills or transport.  Cities are the national economy.  So now more than ever, cities need the powers to make the decisions that can drive local growth.  

Swindon – moving from recession to recovery?

After tipping fairly steeply into recession in 2008, the UK economy has been walking a fine line between recession and recovery ever since. But, as we showed in our latest edition of Cities Outlook, not all cities have mirrored this national trend, Swindon being one such city.

With a massive four jobs in the private sector for every one job in the public sector, Swindon felt the pinch early on in the downturn as the private sector contracted. This was due in part to the loss of 450 jobs at a Woolworths’ store and distribution depot in the city and reduced production at Honda which caused local job losses in the supply chain. As a result, from 2008 to 2009 the share of people claiming Job Seekers Allowance increased by 50 per cent more than the UK average.

During the second half of the downturn the city’s fortunes began to look brighter. The low share of jobs in the public sector meant that, whilst other cities were hit by public sector spending and job cuts, Swindon was relatively shielded. And as Swindon’s private sector began to stabilise the claimant rate fell nine times faster than the UK average. The housing market also saw a recovery; average house prices increased seven per cent from 2009 to 2012.

Figure 1: The impact of the downturn on Swindon

Source: NOMIS Annual Survey of Hours and Earnings workplace-based analysis, DCLG, Office for National Statistics Business Demography, NOMIS Claimant Count

So where next? Swindon’s immediate prospects are mixed. In the private sector, while some of Swindon’s firms are expanding – BMW has committed to investing £250 million in Mini production – others are contracting – Honda recently announced 800 job losses. But over the longer-term  the city’s low dependency on the public sector is a positive; as ever diminishing budgets lead to further cuts in public services and jobs in many of the UK’s other cities Swindon will relatively protected.  And it’s relatively large private sector means it is well placed to support future private sector jobs growth.

Milton Keynes shows the way out of the housing crisis for our cities

'So how many houses do we have to build in our city'? This is the somewhat surprised question that has been posed to us on a number of occasions in media interviews for Cities Outlook in recent days. It is not for the Centre for Cities, just as it is not for Whitehall, to prescribe a magic number to answer this question. But a look to Milton Keynes suggests how cities should go about tackling their housing affordability problems.

Milton Keynes has been one of the UK’s strongest city economies in recent years. But unlike many other strongly performing cities, most recent house price data shows that at £219,000 its house prices were not only below the South East city average but also below the English average of £249,000. This is despite the city seeing the strongest population growth of all UK cities between 2001 and 2011, when its number of residents increased by over 17 per cent.

This is partly explained by the pro-development stance taken in Milton Keynes. By allowing supply to move broadly in line with demand – the housing stock increased by 18 per cent between 2001 and 2011, the largest of any English city – house prices are much lower than many other cities in the south east. This in turn makes it easier for people to access the job opportunities that exist within the city’s economy. Despite the large increase in its population, the employment rate in the city remained on average almost six percentage points above the English employment rate over the 10 years.

Milton Keynes' consistent expansion allows it to play an even bigger role in the success of the national economy. Our other strongest performing cities should look to the example set by Milton Keynes to deliver the housing growth needed to tackle the affordability crisis that they face.

Britain needs more houses, but it doesn’t need them everywhere

Everybody’s talking about housing and the need for more of it.  Rhetorical consensus has emerged across all three political parties, local government (most of it), the media and non-home-owning sections of the public.  However in most of the recent national debates about the need for more housing there has been too little discussion about how housing needs and issues differ across the country.  So it was timely that this year’s Cities Outlook launched this week looked precisely at this issue.

And the message from Outlook 2013 is clear: the UK needs more houses, but this need is far more acute in some cities than others.

The UK needs more houses for two reasons. Firstly the average price of a home now stands at just under nine times the average yearly salary. Given that conservative estimates suggest that we are currently building around 90,000 fewer homes per year than required, the affordability issue around housing is likely only to get worse. Secondly, building houses would likely act as an immediate pick-me-up for the national economy – the building of 100,000 homes is estimated to add an extra one per cent to GDP and support around 150,000 jobs.

These arguments have been rehearsed before. But much less attention has been given to where these houses should be built. The affordability issue is much more acute in some places in others. While the average house costs around five times more than the average yearly pay packet in Burnley, it costs almost 15 times as much in Oxford.

 

As we show in Outlook, this means that the ability to get on the housing ladder varies hugely across cities too. Assuming that a person on the average salary in Burnley could put down a deposit of 20 per cent and borrow at four times annual earnings then the average house would be within his or her grasp. But in Oxford the average earner would have to earn £50,000 more to be able to secure a mortgage on an average priced home.

For existing home-owners and volume house-builders high and increasing house prices are good.  But high house prices are bad for the future economic success of cities such as Oxford, Brighton and Reading because they price people out of the job opportunities that are available within them. This is bad for the individual, bad for businesses in such cities and, as a result, is bad for the local and national economy. Vodafone recently reported that it was struggling to attract middle managers to London because of high housing costs, while the CBI’s recent London Business Survey found that businesses perceived high house prices to be one of London’s biggest weaknesses.

So what needs to be done?  In the short-term any policies designed to kick-start house building, such as Get Britain Building, would get the fastest results if it targeted cities where housing is least affordable.  For example, in the ten cities where housing is least affordable, such as Cambridge, Brighton and Bournemouth, there are more than 100,000 homes with planning permission that have stalled as a result of the downturn.  Not only would unlocking these homes provide a much needed boost to national economic growth, it would help to address issues of affordability in some of our most expensive cities.

What about housing in more affordable cities such as Burnley, Wigan and Blackburn?  Whilst clearly housing is an issue in these cities the problem is not primarily a lack of housing, it’s about the quality of the existing housing stock.  In Blackburn and Burnley only around 2.5 percent of houses are in the higher council tax bands of F, G and H, while 4.5 and 7.5 percent of houses respectively are vacant. And more than one in five houses are classed as ‘category 1’, which are the most serious hazards within dwellings rated by the Housing Health and Safety Hazard Rating System. 

The response to these issues is not simply to build new homes.  Building more houses could simply push down prices even further, hurting current home owners and doing little to contribute to the city’s long term economic performance.  Too many current policies incentivise building new homes, regardless of local circumstances; housing policies and funding for more affordable cities should empower them to deal with issues of housing quality through retrofitting, refurbishment and removal.

The rather obvious, but often over-looked message, from Cities Outlook 2013 is that the importance of housing to the local economy varies from place to place.  This means national housing policy needs to be much more flexible and cities need to be given much more freedom to respond to their particular circumstances if they are to make the most of housing’s potential to deliver a much needed economic boost to the country.

If the rhetoric of ‘we need more homes’ is to become the reality of ‘we’ve built more homes’ then ultimately the vested interests of volume house-builders, existing home-owners and vote seeking politicians (local and national) will need to be tackled.  Only through tackling these will we be able to effectively deal with the UK’s housing problems. 

Cities Outlook 2013 - an overview

Today we launched our sixth Cities Outlook report, our annual index of the economic performance of 64 UK cities and towns.

It’s another really rich report, from fascinating individual facts (did you know that Cambridge has more patents approved than the next 10 cities put together?) to insightful longer term trends about what makes cities economically successful over time. See www.citiesoutlook.org or our Factbook if you’d like further details city by city.

This year it’s clear that the fundamentals still matter most: the cities with the highest skills levels, strong transport connections and a mix of industries are the ones that perform best, whether in boom years or during the downturn.

But there are also some surprises, illustrating the extent to which cities can be affected by individual employer decisions. Take Sunderland, Hastings and Aldershot. Our analysis shows that the downturn falls into two parts: 2008-9, when some cities were still relatively unscathed, and 2009-2012, when some cities were hit hard at the same time as others started to recover.

Sunderland and Hastings were two cities that felt the recession early but, because of decisions by the private sector (notably Nissan and Saga), they experienced a relative recovery between 2009-2012. Aldershot and Swansea, by contrast, did not feel the recession as sharply until 2009, when public sector cuts meant that the cities were hit hard.

Every year we have a special focus on an issue that we predict is going to be important in the year ahead, and this year – when we really need an economic boost – we’ve focused on housing. We already know that the UK as a whole needs new houses (at least 232,000 each year, according to the Government) and that building 100,000 new houses could support up to 150,000 jobs. But a quick analysis of cities shows that the failure of national housing policy to focus on place could undermine its ability to boost the economy, whether local or national.

Some of the UK’s most successful cities, such as Oxford, Cambridge, London and Bristol, are places with low vacancy rates and in which people struggle to afford to buy. This affects the economy because businesses cannot access the workers they need, people cannot access the jobs they want, and it increases the costs of doing business in a local area. These are places that desperately need new houses.

Other cities, such as Burnley, Liverpool and Hull, have high vacancy rates and are much more affordable. While they may lack certain types of housing – for instance, Liverpool is in the bottom ten cities for executive housing – they are unlikely to benefit from a focus primarily on building new houses. Instead, incentives to invest in refurbishment and retrofitting could help those economies be better places to live and do business for residents and employers alike, and could also create jobs. I'll be writing more on this in the next couple of days.

The key message from Cities Outlook, as always, is that each place is different and that the more that policy allows places to respond to their distinctive local economic circumstances, the more likely it is that local economies will grow.

As I said, I and other team members will be writing plenty more on Outlook in the days ahead but if you have any questions in the meantime, please don’t hesitate to get in touch.

Thinking beyond the high street

The news that Blockbuster, HMV and Jessops have all gone into administration within the same week has revived debate about the future of the high street.  Although the high street is suffering from the depressed state of the economy as much as, if not more than, other businesses, the failure of these large retail chains is clearly more than a consequence of a prolonged recession. It is a sign of new consumption habits, created by irreversible technological change.

We have to face the fact that, in future, many of the large chains that we have become used to will have less presence on the high street.  What, if anything, can replace them and what can be done to prevent the potential collapse of our city centres?

Initiatives such as the Portas pilots have a role to play. Taking a strategic view of the high street’s future, and promoting improved management and collaboration, are all positive steps.

But if more and more people continue to shop online then small-scale high street interventions will not be enough to support vibrant city centres. Instead we need to think of town centres and their economies as a whole, rather than looking at them simply as shopping islands.

High density centres with significant daytime office employment generate footfall on the high street during the day and into the evening. The more densely occupied city centres are, the busier they will be and the greater the size of the potential market for the local high street. In other words, there are benefits associated with growth of offices in city centres as well as growth of retail.

Research we published last year showed that even mid-sized cities that enjoyed net employment growth prior to recession, such as Preston and Sunderland, have seen their city centre economies shrink. Centres that are abandoned by office based businesses will be the first to see their high streets empty, creating a vicious cycle as quality of place declines and employers are put off locating in centres.

Increasing the size of the market through investing in office space doesn’t mean that people will buy as many DVDs as they used to, but means that there may be a place for highly specialised shops and service providers to take up newly vacant properties. Recognising a new culture of ‘browse in store, buy online’ might mean changing the mix and type of stores in the high street, for example providing more coffee shops and leisure activities. Planners and town centre managers can also learn lessons from chains ranging from Argos to John Lewis that have successfully adopted the new culture of ‘click and collect’.

There is a great deal that policy makers can do to address the situation on our high streets, and we will be devoting more of our work this year to the future of city centres. But the first step is to realise that the high street of the superconnected age will inevitably be different from the one we recognise, and that we need to start thinking differently and innovatively about ways to revitalise and reconfigure our city centres so that we can anticipate rather than simply react to rapid change.  

Related articles

The return of city centre living?

Blockbuster enters administration

HMV chain considers administration

Jessops, HMV and now Blockbuster - is the high street dying?

City Readings - Jan 15th 2013

I’m sure you’ve been holding on to your book and e-book vouchers awaiting my next cities reading list – well the wait is over.  Below is my latest offering.  As well highlighting examples of the written word that I’ve enjoyed reading, once in a while I’ll suggest a particular podcast (or two) that I’ve enjoyed listening to. 

This week’s five offerings cover a mix of issues – education, skills, housing and benefits – and have relevance and implications for cities and their success in the longer term as well being timely for the current policy debates taking place in Westminster and the media.

‘Skills for Prosperity? A review of OECD and Partner Country Skill Strategies’ by Mike Campbell: Great overview of the skills strategies being pursued by the OECD and partner countries.  The paper concludes that to be successful, strategies need to address all three ‘big picture’ issues – skills supply, skill matching, and skill demand and use – at the same time, and that national policies need to be flexible to respond to the different skills issues that different places face.     

‘Delivering growth whilst reducing deficits: Lessons from the 1930s’ by Professor Nicholas Craft: Thought-provoking report setting out what today’s policy-makers could learn from their 1930s counter-parts.  The reports argues that by announcing that prices would rise and interest rates would remain low, which gave consumers and firms confidence to borrow and spend, the government indirectly provided an enormous boost to the private house-building industry which resulted in the private sector building more than 290,000 homes in one year between 1934 and 1935. 

‘Education, Education, Education: Reforming England’s Schools’ by Andrew Adonis: Very engaging book which highlights the trials, tribulations and successes that Adonis went through trying to introduce Academies and other school-based reforms during his time as Schools Minister in the Blair Government.  He also sets out a broader plan for education reform which includes greater school variation, better teachers, raising standards, stronger governance & more robust and rounded curriculums.     

‘Human Capital in Cities and Suburbs’ by Kevin Stolarick, Charlotta Mellander & Richard Florida:  Good study which finds that the distribution of human capital within metros – between cities and their surrounding suburbs – matters significantly to regional economic performance.  Central city human capital has a relatively larger effect on the economic performance of regions with over one million people whilst suburban human capital has the biggest effect on regional economic performance in smaller and medium size metros. 

‘Redistribution, Unemployment and the Labour Market’ – EconTalk podcast with Casey Mulligan: Interesting discussion focusing on the extent to which policy changes that increased the benefits available to unemployed workers explain the depth of the recent recession in the US and the slowness of the recovery of the labour market. Mulligan argues that macro-economic explanations ignore the micro-economic incentives facing workers and employers.

Honorary Mention.  It isn’t a book about cities, but if you haven't read ‘Thinking, Fast and Slow’ by Daniel Kahneman - You Should!  

I hope you enjoy them and as always I’m keen to get suggestions of writing I should be reading and podcasts I should be listening to.

Network Rail – on track to support city economic growth?

Allowing our cities to expand would help create the growth and jobs the country desperately needs.  However despite only covering just nine percent of the UK’s landmass and Nick Boles best intentions to increase this number, opposition to expanding our cities is still strong.

So, if we can’t physically grow our cities to support growth, our next best option is to better connect them. Fast and efficient transport systems reduce costs for firms and workers – The Department for Transport has shown that eliminating existing congestion on the road network could add £7-8 billion in GDP each year.

This is where Network Rail’s Business Plan for Control Period Five comes in. If it’s approved it could benefit cities in two key ways.

First, rail improvements will increase access for more people to the 72 percent of Great Britain’s knowledge intensive jobs which are housed in cities. Because we know that highly skilled people tend to travel further for work, rail improvements should, in theory, make it easier for them to access these jobs. This is particularly important as the UK economy becomes increasingly orientated towards knowledge-based service sectors.

Second, increases in rail capacity are needed in some of our largest cities. In eleven of the UK’s major cities five percent of passengers (or 18,000 people) travelled in trains which were over capacity during the morning peak hour. As Figure 1 shows, London is the city where the rail network is under most strain. During the morning peak hour 16,000 people travelled on trains than there was capacity for. Birmingham, Sheffield and Leeds also have congestion issues. 

Figure 1: Percentage passengers over capacity, 2011 

Source: Department for Transport, 2011 data

Given this, promises by Network Rail to, for example, electrify the Great Western Main Line from London to Bristol, deliver further improvements to the Northern Hub benefiting Liverpool, Manchester and Leeds as well as continuing with Crossrail and Thameslink in London are welcome. If realised, their plans will increase peak seats in large regional cities and central London by 32 and 20 percent respectively.

But, increasing capacity whilst constraining prices – which there have been considerable calls for – could actually worsen rail congestion. Similar to Jevons’ arguments in 1865, increasing the number of seats on our trains and / or reducing the cost of travel is as likely to cause congestion to rise as it is to reduce it.  

This raises important issues around managing the interaction of increasing capacity and managing demand.  Reflections on these issues will have to wait – I’ve got a train to squeeze on to.

 

East London leads the way on business base growth in the Capital

New figures released by ONS highlight that while the Capital as a whole has displayed remarkable economic resilience since the crash of 2008, the growth of new businesses across the Capital has been uneven in recent years, with East London leading the way on growing their business bases between 2009 and 2011.

While LB Westminster, LB Camden, LB Barnet and the City of London remain home to the largest number of businesses in the Capital, the latest data shows that LB Newham, LB Redbridge and LB Waltham Forest have seen the biggest relative growth to their business base in recent years, with each of these three Boroughs outstripping the national average. In total, seven of the ten Boroughs that have seen their business base increase most in percentage terms between 2009 and 2011 are located in East London.

Contains Ordnance Survey data © Crown copyright and database right 2013, Office for National Statistics Business Demography, 2009 and 2011 data

These latest figures emphasise the complex nature of the London economy, and the varying levels of economic performance experienced across different parts of it. They may also reflect the impact of the London Olympics, with each of the six Host Boroughs seeing improvements in the size of their business base during this period.

The nature and growth of business activity across London has been a recent focus for the Centre. Last month we published research examining the role of small businesses in the London economy, and called for the GLA, London Boroughs and Government to do more to ensure that enterprise policy in the Capital reflects the specific circumstances businesses face in the Capital.

You can find out more about the work here.

Follow Ben on twitter: @BenCities

2012 was a big year for UK cities; now 2013 is all about delivery

2012 has been quite a year for UK cities. The national economy has continued to struggle, emerging from a double dip recession only in the third quarter of this year, while cities across the country have been implementing significant budget cuts. All of this has been taking place against a backdrop of almost continual policy change since 2010, including reforms to the planning system and the introduction of a range of new individual funding pots and growth mechanisms.

Yet despite the on-going turbulence, the introduction of City Deals and the publication of the Heseltine Review on local growth mean that 2012 may actually be remembered as the year that the UK finally took serious steps to empower our cities to drive the economy forward during the coming years.

Centre for Cities in 2012: helping to shape a new deal for our urban areas

Over the course of the past twelve months, the Centre for Cities has been working hard both to support policymakers and practitioners through this period of change and to shape the next wave of devolution to major towns and cities across the country. We have worked directly with colleagues across the length and breadth of the country – from Sunderland, York and Manchester, to Oxford, Cambridge and Reading – to ensure our work is as relevant and practically useful as possible.

We began the year by identifying those cities that were out-performing the national economy and those that were most in need of additional support in our annual Cities Outlook report. This fifth edition of our flagship report has been the most successful and widely used to date. More than 28,000 copies have been downloaded during 2012 and I have enjoyed going to meetings with key decision makers in Whitehall and in town halls across the country where the Centre’s figures get quoted back at me. We’ve also had a very positive response to our Cities Outlook 1901 report, which charted the changing fortunes of our city economies over the past 100 years and extracted some lessons for policymakers of today.

The most innovative policy development for our cities in 2012 has been the introduction of individually tailored City Deals to urban areas across the UK, which offers the chance to transform how cities drive economic growth in their area. Throughout the year the Centre has played a key role in supporting Ministers and City leaders to craft both the principles that should underpin the City deals, and their content. The first wave of Deals, announced in the summer, were struck with England’s Core Cities, covering a breadth of policy areas, from investment to skills and enterprise support.

The Government has now invited a further 20 cities, including the next largest cities such as Southampton and Portsmouth, and England’s fastest growing cities such as Milton Keynes, to bid for a wave 2 City Deal, with decisions due early in 2013.

Alongside the City Deals process, the creation of new private sector jobs has been of major concern to Government and cities alike as the country emerged from double-dip recession post-summer. We have been helping cities understand the current make up of businesses in their area, and the critical role that small businesses play in city economies.

2012 has also been a momentous year for London. In May Boris Johnson was re-elected as London Mayor for a further four year term, while the Capital’s triumphant hosting of the Olympic Games during the summer is thought to have provided a small boost to GDP, and raised the profile of London globally. But as our analysis makes clear, the ultimate success of the Games will be determined by the ability of policymakers and communities to deliver a lasting Legacy for East London.

The Government has continued to explore other means of boosting local government finance and cities’ ability to invest in infrastructure and development priorities throughout 2012. As well as providing analysis on the passage of the Local Finance Bill and the Regional Growth Fund, the Centre has also led the debate on the need to localise key funding streams to boost investment, and how our mid-sized cities can boost investment in their urban centres.

And as ever, throughout 2012 the Centre has produced regular briefings to support policymakers on a range of other issues, from housing delivery and the changing role of local enterprise partnerships, and the prospects for more combined authorities emerging across the UK.

Cities in 2013: the year to deliver

Across the country, cities have a fantastic opportunity to seize the initiative in 2013. Once concluded, the City Deals process will leave our urban areas with significant new powers and responsibilities to drive growth in their area. But much work remains to ensure they can deliver – and it is also vital to remember that City Deals are not and cannot be the only way in which government supports city economies.

The prospects of a robust Core Package of measures that ensure cities can shape and deliver their spending and investment priorities as part of the City Deals offers a starting point for a further transformation of the central-urban relationship. Getting this right, and extending it to other places, should be a key focus for next year.  

Government will need to work hard to ensure it delivers on its existing commitments in City Deals and that it starts to break down the silos that can cause so many inefficiencies and poor outcomes ta local level.

For their part, cities must be clear about their economic strategies, ready to take new powers on, and willing to take potentially difficult decisions over where their limited resources will be directed.

Centre for Cities’ research programme over the next two years will continue to support both Government and Cities in these endeavours. 2013 will also see the beginning of a mini-Spending Review for the period up to 2015, and the Centre will continue to make the case for investment in our cities’ economies throughout this process.

Finally, I’d like to take this opportunity to thank all of those who have contributed to the Centre’s research this year. The team and I look forward to continuing to work with you during the year ahead. We believe that, despite the on-going economic and financial challenges faced by national and local policymakers, significant progress has been made during 2012 towards ensuring our cities have the tools they need to boost growth and jobs in their area.

2013 is the year to make sure we all deliver.