Monday, February 27, 2012
NIMBYs strike at the heart of British commerce
New flats threaten City's future, MPs told
City chiefs warned that the Square Mile's success as a financial centre is threatened by an explosion in the number of offices being converted into homes. They attacked government plans to scrap the need for planning consent to change commercial premises into residences. They fear that up to a fifth of the total office stock in the Square Mile could be turned into flats in the next five years. "Housing offers the immediate prospect of higher returns than offices on many sites," the City of London Corporation told MPs. If more flats were interspersed among office blocks, just a few homeowners could stymy "large-scale and valuable" new schemes by objecting to them on issues such as the impact on light.
Posted by drewster @ 10:08 PM (2462 views)
10 thoughts on “NIMBYs strike at the heart of British commerce”
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timmy t says:
I think what they mean is they want the price of their offices kept low and the value of their homes kept high.
drewster says:
What the article doesn’t tell you, dear reader, is just why “housing offers the immediate prospect of higher returns than offices”. Unlike homeowners, the occupiers of non-domestic properties have to pay a tax called Business Rates. This is a fairly hefty tax: 43% of the “rateable value” of the property. The rateable value represents the open market annual rental value of a business/ non-domestic property. So if your company pays £100/sq.ft. (per annum) to rent an office, then they also pay a further £43 in Business Rates. (It’s the occupier/tenant who pays, not the landlord.)
This leads to some perverse incentives for the landlord. If the tax was scrapped, the landlord would just raise the rent to £143 per year, knowing full well that the company can afford to pay it since they already pay that much in total. However if the landlord converts the property to residential, they can rent it out for the full £143 (subject to supply & demand).
We’ve already seen this happen outside London. In cities from Liverpool to Leeds, Birmingham to Bristol, developers have knocked down old commercial sites and built shiny new apartment blocks. Meanwhile new shops and offices are built on office or retail “parks” on the outskirts of the cities. The new residents of these shiny new blocks think they’ll be close to work; but in fact they end up having to reverse-commute.
In London the incentives are, if anything, even stronger. A glut of offices in the City has led to falling rents. At the same time, overseas “investors” are keener than ever to snap up a pied-Ã -terre in zone 1. If your next job interview is on the Slough Trading Estate, now you know why.
icarus says:
“just a few homeowners could stymy “large-scale and valuable” new schemes by objecting to them on issues such as the impact on light.” Could they? The residents of the City of London Corporation are well outvoted by the managements of the banks and financial services firms located there. And for most purposes the CLC and the elderly men in tights and satin robes in their gilded coaches are self governing and jealously guard their privileges aganst interference by anything as johnny-come-lately as parliament and the state. They tell the state what to do, not vice versa.
Anyway, how much office space do they want? The CLC was behind the development of the Spitalfields Market site and then there’s City overspill at Canary Wharf as well as the Mayfair hedge funds.
enuii says:
Then when everyone lives in a flat in a town with no jobs the reverse will happen, and the cycle will repeat itself with the only loosers being joe public as usual. Off the top of my head I can think of a number of site in my town including an engineering machine tools business (German owned) shut down in 2008 when the parent company scuttled back to Deutchland turned into appartments. As Drewster says there may be plenty of flats available but they are not much use if there are no commercial premises left to house jobs!
stillthinking says:
If you look north when you arrive in Waterloo in London, just before the station, there is empty office block after empty office block, which look as though they have been in that state since the 70s.
Thats right by the station on the river opposite Parliament, which seems a pretty good location, and nobody uses that. There is empty office space all over London, if they can convert to flats, great why not.
drewster says:
Still thinking,
Before you get to Waterloo, just after Clapham Junction, there’s a great big industrial / commercial site not being used for anything. In fact this large prime site has been derelict for over 25 years. The problem with Business Rates is that they don’t apply to properties which aren’t fit for occupation; and they don’t apply to vacant land. They certainly don’t apply to a certain derelict power station in Battersea. Hence why we need LVT.
Needless to say, I also believe LVT would minimise the number of flats built in the Square Mile. Typical office rents in the City are £50/sq.ft.; for an average 800sq.ft. flat that would mean £40,000 per year in rent. In cheap parts of the country a similar-sized flat rents for £6,000 a year; so we can see that £34,000 of the London rent is due to the location. Slap on an LVT of just 50%, and those foreign buyers will run for the hills. Offices, as per my earlier comment, would be unaffected since they already effectively pay LVT. Voilà , the City is saved for commerce.
mark wadsworth says:
Drewster has already beaten me to the two main points.
But this quote is splendid: ” “Housing offers the immediate prospect of higher returns than offices on many sites,” [wailed] the City of London Corporation.
The self same people who have been rapaciously blowing credit bubbles, asset stripping, exploiting tax loopholes and demanding quadzillions in subsidies are a bit miffed when somebody else wants to get their snout in the rental trough? Oooh the irony.
icarus says:
MW – Irony? The City is the world cheerleader and faciltator of the neoliberal ideology and politicies (offshore, secretive trusts, deregulation, tax the economy rather than land or capital gains, privatisation etc.) that enable the world’s rich to accumulate and retain their wealth and buy expensive residences in places like, er, London.
Another irony is that the cheerleader for ‘free markets’ wants to prevent the free market from operating in the City property market.
Yet another is the City’s warning that its future is being compromised by ‘short-term market forces’ (we’re supposed to see beyond the short term in order to safeguard the City’s long term future) when the whole of British finance has been mercantile and short-termist.
mark wadsworth says:
Icarus, yup, that’s layer upon layer of irony.
They have crossed the irony horizon and are now in a black hole of irony, from which no reason or logic can escape, only bullsh*t.
icarus says:
MW – let’s see whether the chickens have been sucked in or whether they’ll be coming home to roost.