What lessons are to be learnt from the great estates and their role in the development and redevelopment of London?

The physical development of a city is not, as is often supposed, merely another aspect of its economic activity. Decisions on the use of land are absolutely fundamental to the way people live on it. The nature of property ownership, the extent of public control, the styles of streets and buildings, the whims, fashions and pecuniary ambitions of land holders, all dictate not just the city’s appearance but the social behaviour of its inhabitants.¹

The first lesson is historical, namely that within the inner-London estates there was something resembling the best ideals of urban planning. Through a series of legal mechanisms and pecuniary – and perhaps reputational – incentives, the estates, architects, builders and others composed some of the most impressive parts of urban London. The image of Victorian London teeming with disease and privation must be set against that of middle-class London. The dimensions of this historical lesson bleed over into institutional economics and the capacity of markets to create their own systems of governance. This is relevant to the second lesson from the history of the great estates, which is contemporary and comparative-institutional, namely that the estates form one aspect of a broader case study of soft-touch regulation interacting with dynamic market forces in a large city.

Across the developed world some of the most productive areas – that is, cities – are the most incapable of building more, which has sizeable and widespread ramifications. The living standards of those who can afford to live in them are affected by artificial scarcity of living space. More than this, the types of urban design prevented by regulation are the very ones most carbon friendly and associated with other sociological benefits.²

Economic theory and historical examples shed light on what would happen in different regulatory environments and thereby inform debate about this important topic. London, especially in the nineteenth and early twentieth centuries, offers an excellent case study for both historical and institutional reasons. Over this period London was the centre of the world and became its most populated city. Its continuing growth was unprecedented. Although it is still a global city and the largest in Europe, inner London is still significantly less populated than it was a century ago. This is related to the institutional point that the history of London allows observers to see the self-organising and self-regulating nature of individuals and markets. Both in development and redevelopment, the ability of private contracting to result in positive outcomes is much stronger than many would expect. With large landowners in particular, the internalisation of spillover effects gave positive results, such as provision of green space and aesthetically cohesive planning, while negative effects, such as odious trades, were prohibited. Much of this occurred in the shadow of government rules but was market rather than public-policy led, especially in areas with middle- and upper-class tenants. The peculiarities of the concentration of London landowning offers a clear illustration of the benefits of large-scale landowners that internalise many spillover effects and reduce transaction costs associated with redevelopment.

Lessons of and potential for intensification

 

Contemporary London faces a housing shortage. Despite the rise of remote work and the pandemic-induced decline in rents, rents in 2022 reached new heights. Relatedly, house prices within London and surrounding areas have grown faster than wages, and homeownership lies increasingly out of reach of even white-collar professionals. The political economy of the situation is difficult. The current system of land-use regulation asks existing homeowners to allow nearby house building while offering concentrated costs and at best diffuse benefits.³ Development often brings noise, more traffic and loss of open space while offering few benefits to the individual (despite larger social benefits). It is no wonder that new projects get bogged down, diluted and drowned. The political reality of extensive development is perhaps more difficult than that of urban intensification and regeneration in London. Recent regenerations include council estates and increasingly mixed-use developments built by, for example, British Land and London Docklands. Some see such actors as inheritors to the great-estate tradition.⁴ The continued shortage of everything from lab space to housing shows that this is not enough.

Policy advocates such as Samuel Hughes and Ben Southwood suggest new regulatory procedures to change the pay-offs facing stakeholders and replicate some of what incentivised the estates in the eighteenth and nineteenth centuries.⁵ They argue that their proposed rules:

offer a way of replicating effects [of the great estates] under modern conditions. As part of the block plan process, residents set a design code governing any permitted building. Because design is thus determined at the level of the neighbourhood rather than the individual plot, residents will be incentivised to maximise value across the neighbourhood as [a] whole – rather than maximising it on each individual plot, potentially to the detriment of its neighbours. Block plans, implemented through street votes, thus offer a middle way between an architectural free-for-all and the imposition of rules by the state, potentially yielding a generation of popular and beautiful urban architecture.⁶

As the authors note, estimates suggest that ‘if London were intensified to the densities of the historic areas of Paris within the Périphérique, it would accommodate around forty million people.’⁷ It is not necessary to go to Paris to appreciate that some of the best-loved parts of London, built by the great estates, manage to combine density and liveability with economic and social benefits.

Notes to Conclusion

Parts 2 and 3 emphasised the historical role of private planning in the development and redevelopment of modern London, and argued that it had some of the benefits often claimed for regulated systems, such as responding dynamically to changing circumstances and solving externality problems. This chapter traces the role of the state in regulating the development of urban London, showing how state power changed in both degree and kind. It locates this change within the perceived failures of the market, technological changes and the general rise in statist thinking about public planning. In conclusion it discusses current failures of the planning system, identifying opportunities for reform in light of lessons from the great estates.

At approximately the same time in the early twentieth century, the rise of social housing, emergence of mass owner-occupancy and continuation of rent control caused a collapse in the leasehold system. In the interwar years, private developers built an astonishing three million homes, mostly on farmland around Britain’s cities.¹ But by mid-century, new regulations and the lingering economic effects of the Second World War had reduced the market-built housing sector to a shell of its former self. The 1947 Town and Country Planning Act nationalised the right to build, while urban green belts limited the extensive growth of cities.

Over the intervening years the Conservative Party, in particular, has sought to liberalise the market. The conversion of public housing into private benefitted a generation of existing tenants but failed to spur the type of supply-led changes needed for housing costs to come down. The financial regulations brought in after the financial crisis are also seen by some to have further hamstrung younger potential buyers.

Regulation of construction before dispersal

The benefits of the private planning of development and redevelopment as practised by the great estates were shaped by the institutional context of Georgian and Victorian London. To outline that context is no easy task. Prior to the 1889 creation of the London County Council (LCC), municipal governance consisted in a maze of local ‘vestries’ following parish boundaries. Only the City and Westminster – the former more important in terms of both population and economic heft – were unified. The earlier Metropolitan Board of Works (MBW), created in 1855, pulled some public services together across the region, including new sewerage for areas not served by the existing City of London system. The MBW also carried out slum clearance and roadworks. Initially these occurred concurrently because its slum-clearance powers depended on roadworks or other improvements, though over the nineteenth century, various Acts strengthened those powers. But in general there was little local planning apart from private planning by landowners and/or developers.

Despite this, the development of the great estates and the freehold lands surrounding them did not take place in the absence of regulation. The national government regulated building in various ways – some rulers even tried to ban all construction of dwellings around existing London. As Nicholas Boys Smith explains:

Under pressure from London’s Mayor and Alderman, four successive monarchs and the Parliamentary Commonwealth all attempted to prevent building beyond the city limits. At least three Acts of Parliament, nine Royal Proclamations and innumerable Orders in Star Chamber and letters to and from the Privy Council attempted to ban the construction of new building within one, two, three or five miles of the City Gates and of Westminster (details changed over time).²

Based on other sources, Boys Smith argues that the 1660s transformed London: attitude as well as policy changed from regulating the principle of building to regulating its manner and method – a useful distinction.³

The Great Plague (1665) and Fire (1666) cleared the City of London itself of much of its medieval architecture. Although lofty plans for rebuilding along continental lines were drawn up, for a number of reasons they were not pursued.4 What did come about was the 1667 Rebuilding of London Act, which set out regulations for the City. These would ultimately be extended to Westminster and the rest of growing London, and included the standardisation of development into four ‘sorts’.⁵

In the aftermath of the Fire, various building Acts were passed to limit the types of building features that contributed to the spread of fire. Those of 1707 and 1709 banned wooden ornamentation, such as cornices, and stipulated that window frames be recessed – both in the interests of hindering the spread of fire.⁶ The entire system was overhauled in the late eighteenth century with the Building Act (1774), which applied to London and was extended to other cities.⁷ This introduced not only further regulations concerning exterior wooden ornamentation and the construction of windows but also a system of housing classification.

Under this, four ‘rates’ of houses related to the size of each floor and the type of street. For example, First Rate houses were defined as valued at over £850, with floorspace of more than 900 sq. ft,⁸ while Fourth Rate houses were valued at less than £150, with floorspace of less than 350 sq. ft.⁹ Alongside each rate sat different requirements for thickness of walls, among other things; but of major importance, as John Summerson and later writers agree, was that this system of regulation also ‘confirmed a degree of standardisation in speculative building’, so that references to rates became common in agreements between estates and builders.¹⁰

 

 

The first real overhaul of the 1774 legislation did not come until 1844, with the Metropolitan Dwelling Improvements Act. Over the rest of the century the tendency was towards measures increasing minimum street width and space between buildings, as well as decreasing density and addressing public-health concerns.¹¹ Height restrictions were determined in part by the width of the streets and were strengthened in London after the construction of increasingly tall residential buildings along Victoria Street.¹² In addition, the derived by-law regulations stemming from Public Health Acts increasingly regulated the form of housing in the UK, encouraging lower net density than earlier working-class housing as streets became wider. Over the second half of the nineteenth century and first half of the twentieth, these types of control were tightened as demands for regulation continued, but other forms of state involvement grew alongside them. Nevertheless, Boys Smith¹³ notes that developments that met the rules could not be refused; there remained an implicit right to build.

Urban problems, slum clearance and overcrowding

By the middle of the nineteenth century the regulation of construction was just one aspect of state involvement in housing and housing markets:

Perceptions as to what constituted intolerable overcrowding varied between cases and between countries. England, almost certainly having the least congestion, was more concerned with overcrowding as an evil than either France or Austria and was far ahead of any continental country in providing philanthropic and municipal housing.¹⁴

Public-health crises, particularly those stemming from cholera epidemics, led to the state’s increased involvement. At first this meant more regulation, along with such public works as sewers and roads. Later it included clearance of the worst dwellings and ultimately provision of housing.

One way to view this historical development is to root it in the private philanthropic efforts of the model-housing organisations described in Chapter 2. These and other charitable providers achieved better outcomes through a combination of factors, only some of which were scalable. On the one hand, they built higher-quality housing and instituted practices both to guard against the deterioration that led to slums and to reduce turnover and improve rent-collection methods. They also set up paternalistic controls to limit social dysfunction. On the other hand, they also benefitted from being oversubscribed and so could select tenants in a way that, by definition, was not scalable. The very location of the charitable dwellings – that is, in the wealthier areas – was also carefully selected.¹⁵

Various factors conspired to keep the housing of the poor below an acceptable standard. Despite economic growth, incomes were still low. Furthermore, until the middle of the nineteenth century the geographic extent of an urban centre was limited by transport technology in a way it would not be later. Since the British economy industrialised early, it lacked cheaper, more remote housing for workers. When the railways arrived, their physical assault on the existing city went along paths of least resistance: as stations were built in London, as in other cities, they knocked out neighbourhoods that overwhelmingly housed the poor. Similarly the creation of roads by the MBW: sometimes rookeries or slums were targeted; generally though they simply represented the easiest routes along which to build.

These concerns were addressed in various ways during the middle and late nineteenth century by such legislation as the Torrens Acts (1868–82), which attempted to compel owners of slum properties to demolish or repair them, and the Cross Acts (1875, 1879), which allowed local authorities to prepare slum clearance and improvement schemes.¹⁶ This clearance also enabled philanthropic operators to acquire sites more cheaply.¹⁷ However, on balance it seems likely that all these measures ‘were largely destructive’, as Simon Jenkins illustratively writes, ‘acting as a many-pronged pincer squeezing the poor into even tighter corners of the city’.¹⁸

At the same time, the standards deemed acceptable for poor housing quality rose. While this occurred for what now seem obvious reasons, the effect was an artificial scarcity, with the maths of construction cost and ability of tenants to pay not working out favourably. Through various parliamentary reports and works by interested reformers such as Charles Booth, later Victorians developed a detailed sense of the plight of those who coexisted alongside their mannered middle- and upper-class domains. Within the broader historical and geographical context, urbanisation¹⁹ neither created poverty, nor was poverty unique to Britain or the nineteenth century. The captivating nature of nineteenth-century poverty in London and other urban centres was not its existence, rather its juxtaposition with wealth.

While the historical debate around standards-of-living changes associated with the industrial revolution, economic growth and urbanisation still rages, it is clear that standards did ultimately rise as a result of sustained economic growth. It is also clear that Dickensian nightmares notwithstanding, millions preferred living in the growing cities to remaining in the country. 

Nevertheless, in an urban setting an aggregate of individual buildings of reasonable quality could suffer from problems of drainage and rubbish less likely to afflict rural dwellings, though such matters could be addressed through public works and improvements – as seen in the period properties that survived slum clearance. But for reasons including cost, public-health theories and ideological beliefs about density, the common response was that these were problems that better, lower-density housing would solve.

Planning, social housing and Nothing Gained by Overcrowding

According to James Yelling: ‘It is generally accepted that 1890–1914 was the formative period of modern British town planning, and henceforth the control of land, and of land uses and land values, became of heightened significance.’²⁰

Already in the nineteenth century the idea that the dispersal of the population was the only way to improve their lot was becoming increasingly popular. Early forerunners of later government efforts include the Artizans, Labourers and General Dwellings Company on their Shaftesbury Park and Queen’s Park estates.²¹

 Legislation in the nineteenth century allowed municipal governments to build social housing, the first example being in Liverpool under an 1864 Act.²² Most publicly supported – if not publicly provided – working-class housing came via the philanthropic model-dwelling providers, who were given land acquired by the MBW and later the LCC through their slum-clearance powers.²³ However, this proved expensive and inefficient for housing the working classes.²⁴

Instead, the direction of travel was towards suburban solutions for the working class, as increasingly for the middle. The transportation innovations described in Chapter 2 increasingly allowed the middle classes to choose a suburban and commuting lifestyle, but until 63 the twentieth century the combined cost of rent and fares proved unaffordable to most of the working class. One attempt at addressing this was workmen’s trains (in part required by Parliament), which offered reduced fares on early-morning journeys into London.²⁵

Building first on examples from philanthropic model housing in London and later on visionary employee housing for industrial workers first at Saltaire and then at Cadbury’s Bourneville, public-housing efforts concentrated on urban tenements and, later, suburban cottage- style estates. As Richard Dennis writes: ‘Under Part III of the 1890 Housing Act local authorities were authorised to acquire green-field sites for public housing, and under a further act in 1900 these powers were extended to include land outside their boundaries.’²⁶ The LCC’s four pre-1914 cottage estates were early examples of a type of local- authority development increasingly seen, after the First World War, as the way to provide better working-class housing. Private markets were not deemed able to provide such housing – a view helped little by wartime measures such as rent control, as well as the general post-war economic situation.

The political demand for improved housing was multifaceted and strong. The state of housing that soldiers returned to became a major point for the Prime Minister, David Lloyd George. One perceived threat was political stability in light of the nascent Bolshevik experiment. The idea was that improvement of living standards and decentralisation and suburbanisation of housing would reduce political risk.²⁷ As Peter Hall writes, the scale of the increase in state provision from before the war was remarkable, and between ‘1919 and 1933–4, local authorities in Britain built 763,000 houses, some 31% of the total completions’.²⁸ The urban character of these places as well as private, owner-occupied housing for the better off stemmed from the ideas of the garden city and suburb of Ebeneezer Howard, Raymond Unwin and his influential Nothing Gained by Overcrowding and the resulting Tudor Walters Report. The standards promoted, 64 including ‘terraces of no more than eight houses (which often led to culs-de-sac) and a density of twelve homes per acre’, were only plausible on cheaper rural lands.²⁹

 

 

The march of planning continued through the interwar years as Britain adopted American/German-style zoning with the Town and Country Planning Act (1932), which ‘introduced “Planning Permission” into British legal history’.³⁰ As Boys Smith rightly notes, the plans passed during this time – like zoning in much of the USA before the 1960s wave of reductions in allowed housing – were more than adequate for population growth even at the low densities stipulated. But there were peculiarities to UK planning. The past changes in the role of the state in housing represented an ever stricter rules-based system paired with increasingly active state provision, though later the regulatory system became the more discretionary one that has endured into the twenty- first century.

London in the crosshairs and the countryside protected: town and country planning

 Up through the interwar period the pattern of economic activity had been primarily market-based. Transportation developments enabled middle-class movement to new suburbs, while government policies worked towards the same end for the working classes. But there was no comprehensive regional or urban planning. This changed in the aftermath of the Second World War. The new goals of post- war planning included regional economic planning and countryside protection. Regional planning sought not just to support declining regions but may have also cut the ground from beneath the most successful cities. This targeted not just London but also the Midlands.³¹ Changing economic forces and trade patterns weakened the once mighty northern industrial cities, while the south-east, due in part to 65 rising industrial fortunes in the areas around the North Circular in London and out west towards Slough, continued to grow. For some intellectuals, regional divergence and the swallowing up of countryside and fertile farmland – as well as increasing probability of another war – together cast a shadow over London’s buoyant prospects. As Peter Hall describes, the intellectual history of urban planning is intimately tied to economic ideas and the romance of dispersal in the form of regional economic planning. Such planning manifested itself as distribution of industry and commerce as well as of housing.³²

A number of legislative Acts in response to the Barlow Report of 1940 dramatically changed the political economy of Britain. Not just the more famous Town and Country Planning Act (1947) and the New Towns Act (1946) but also the Distribution of Industry Act (1945) created a system whereby an entire category of decisions moved from the market to planning experts. With the 1945 Act, the government required industrial development certificates from the Board of Trade for new factories or extensions over a certain size.³³ A similar control was later applied to office space. The purpose of the first two Acts mentioned was to alter the political economy of housing development dramatically. At a fundamental level the right to develop land was nationalised with the Town and Country Planning Act, which also made it easier for local authorities to designate green belts as part of their development plans. Any development incurred a 100 per cent betterment levy, though this was dropped. With the New Towns Act the hope was to start dispersing the population of inner London into planned low-density towns.

 In addition to these changes, as well as bomb damage, millions of houses in old neighbourhoods vanished in slum-clearance efforts, many replaced by council housing. Over time, especially in London and other cities, this came to consist of towers that residents disliked compared to other types of housing, and which achieved lower densities due to the vast open spaces around them. Furthermore, costs associated with added floors increased non-linearly, so they were more expensive than other types of more popular, denser housing.

Greater and greater London

The result of these policies and of changes in the British economy over the last decades has been to force development in the most productive places in the UK farther out (when it is allowed by the discretionary planning system) and to prevent the intensification of existing neighbourhoods (except for notable quasi-public regeneration projects in the last few decades). Importantly, the economic result of this is twofold: first, productivity improvements that do occur increase nearby land prices; second, productivity itself is limited because the extent of the labour market is constrained by land-use regulations.

When workers in a location become more productive they produce more output for given inputs. It is this productivity that drives economic outcomes. In the abstract, the expected responses to productivity effects are manifold. First, employers will want to locate in more productive places. Second, employees will be drawn to them because they can pay higher wages. The result is that productive places will become denser with workers and locations near them more populous. An example from the USA is Willesden, North Dakota, where fracking led to a boomtown in the last decade. In the short run, when the supply of housing is fixed (it takes time to build), the price would probably be expected to rise – a relatively small number of existing units are being competed for by productive and therefore well-paid workers. However, in the long run the market would be expected to determine the price of housing – not just ability to pay but capacity of sellers to provide. Just as in any other market, the lure of profit draws investors to finance and build because sale prices exceed land and construction costs. If, however, the supply of housing is entirely fixed by regulation, all gains in productivity will accrue to existing landowners.

While the actual situation is not that dire, interventions that limit the ability of housing supply to respond to price signals – that is, limit its elasticity – sap the real benefits of productivity. Rather than just being a distributional question about how policy changes the beneficiaries of enhanced productivity, policy also creates deadweight loss whereby the total wealth of society is reduced. By limiting the supply response, fewer people move to productive places, with dynamic effects on productivity itself. In a world with fewer regulations limiting housing, the resulting increase in labour in productive places would increase the wealth of both individuals and the nation as a whole.

Notes to Chapter 3

London’s expansion was neither uniform nor managed:

London was expanding in the 1870s hand over fist, or rather in fits and starts. How was all that growth managed? Of planning in the modern sense of the word there was none to speak of, either physical or economic. London was still strictly laissez-faire; it had no extension or reconstruction plan of the kind that was starting to be favoured by or imposed upon continental cities. There was no active model of forethought for expanding the world’s biggest city, only an accumulation of passive constraints: building regulations, sanitary by-laws and covenants imposed by landlords.¹

In the context of the early twenty-first century it may be the dynamism rather than the mix of grandeur and grime that stands out most about nineteenth- and early twentieth-century inner London. While we may mourn the loss of Georgian or even Victorian London, the ability of past generations to build anew is staggering. It is perhaps because of post-war destruction and the consequent development of the conservation movement that new development has become so difficult. While the conservation movement is, of course, much older, its scale and power changed after the Second World War with the Town and Country Planning Act (1947) and the Civic Amenities Act (1967). Among other things, the former introduced a listing system for historic buildings, the latter the concept of conservation areas rather than specific buildings, allowing neighbourhoods to be protected. Similar efforts were made in the USA.²

New replacing old often emphasises grand destructions of civic or quasi-civic buildings or government-aided destruction and ‘renewal’. Firmly in the pantheon of conservationists’ anathema are: the destruction of Euston Station and the threat to St Pancras (and, in the USA, demolition of Manhattan’s Penn Station); the building of great highways dividing neighbourhoods;³ the destruction of neighbourhoods themselves through slum clearance. Widespread demand for historic preservation laws is relatively new – the Society for the Protection of Ancient Buildings was only founded in the late nineteenth century. The Georgians, Victorians and Edwardians remade their cities with relatively little concern. Many buildings in Manhattan or central London replaced existing ones, including some whose loss shocked later generations. This was less the case away from city centres. The technological changes of the nineteenth and twentieth centuries allowed cities to expand, so that generally the greater the distance from central London the newer the houses, most of which stand on former farmland.

Even before conservation rules, many areas on the great estates were kept intact, although others were systematically rebuilt after their initial building lease or later repairing leases expired. As land prices increased, many of the vast London seats of the aristocracy were demolished or adapted for other uses. In New York, the mansions of the gilded age met the same fate.

Perhaps the most important advantage of the great estates, as opposed to smaller freehold landholding, was that their size and the nature of reversionary leases gave them incentive and capacity for private planning. They could undertake comprehensive replanning and rebuilding. Many buildings in current conservation areas, such as the Queen Anne revival red-brick streets of the Grosvenor’s Mayfair estate and the Cadogan estate, are themselves replacements. Furthermore, even when not comprehensively rebuilt, Georgian streets were transformed through the application of ornamentation and terracotta tiling. The leasehold system allowed such changes at street, block or even wider level. The great estates could take advantage of economies of scale more easily – and do far more – than individual freeholders, and could reduce negative spillovers in a way that involved neither the direct incentive of freeholders nor the limited regulatory system. This capacity was, of course, constrained, and depended – as with public planning – on geography, features of the markets and even some degree of unforeseen good fortune.

As such, the system offered some of the benefits of both widely dispersed freeholds and later government controls. During the long period of the initial building lease – and any subsequent leases – the power of the estate was mostly limited to enforcing the restrictions set out in covenants. While rebuilding freehold land was more straightforward in this period before planning, the results were often less pleasing aesthetically than more uniform estate rebuilding. Other aspects of private planning, such as coordinating land use, were also more easily practised by the estates.

This chapter shows how in the nineteenth and twentieth centuries the great estates responded to changes in the market. While they became wealthier as land values rose, this also led to their densifying holdings. It shows how this took place in different ways over time and within the economic, technological and social context that drove the market. The leasehold system allowed both regulatory control and market incentives. In response to market forces, great estates used leases to densify existing neighbourhoods incrementally with additional storeys and flats, updated architectural designs to changing tastes and sometimes comprehensively rebuilt areas.

Urban growth and change in the nineteenth century

It is nigh impossible to exaggerate the scale of urban change in the nineteenth century. For seven decades the average ten-year growth rate for the population of London varied between a low of 16 per cent and a high of 21 per cent.⁴ With figures like this the population grew from around 1m in 1800 to 6.5m by 1900.⁵ Indicative of the scale of growth is that roughly half those living in London in 1851 were not born there.⁶ It was not the scale alone that led to changes but also the form it took, enabled by new technologies.

In the first few decades of the early nineteenth century this growth, like all prior urban growth, was concentrated in the emerging city centres. Walking-speed provided a limit to the geographic spread of urban areas. Transportation advances over the century – railways, the underground and the shorter-range feeder transportation of omnibuses that allowed people to commute from their home to a station – enabled the extensive growth that pushed ever outwards. London quickly outgrew the confines of the City, filling in along the Thames towards Westminster before 1800, but it was really in the nineteenth century that it began swallowing up increasingly remote villages. Fashionable London shifted westward to surround Hyde Park rather than just abut its eastern side: Bayswater, Kensington, South Kensington, Knightsbridge and Belgravia joined earlier Mayfair to complete the rectangle around the park. In the process described in Part II, the architect Samuel Pepys Cockerell laid out Tyburnia on the Bishop of London’s lands near Paddington to the north-east of the park. In Belgravia, Thomas Cubitt did the same on the Grosvenor land. To the north, the efforts of John Nash and the master builders James and Decimus Burton pushed into Regent’s Park. And later the efforts of other private developers, small and large, increasingly turned agricultural land near London into suburban land.

Outside this ring the wealthier, who could afford the commute and wanted to escape the increasingly polluted core, moved to areas such as Clapham, Richmond and Hampstead⁷ and commuted by private carriage. Even before the advent and expansion of railways, horsedrawn omnibuses allowed those who could not afford a private coach to commute from greater distances. And for places out on the river, steamboats began running along the Thames in the early nineteenth century. With the coming of the railways the commutable area of London expanded dramatically. Though the countryside grew ever more physically remote as fields were filled in, railways allowed easier travel. Towns such as Brighton became not just holiday destinations for Londoners but far-flung suburbs. Such development at lower density absorbed more countryside around cities than was common on the Continent, but gave more people private gardens.

With this transport revolution alone, much of the farmland around London and the industrial cities of the north would have been converted to housing as the returns from building terraces rose above that of growing crops, but this was reinforced in the later nineteenth century by a dramatic fall in agricultural prices. This had a profound impact on the landed aristocracy, including some of those fortunate enough to have London estates. Within just 50 years the value of urban land and houses grew dramatically while that of agricultural land plummeted:

In 1850–1 land had been assessed at £42.8m in England and Wales and houses [including the land on which they stood] at £39.4m. By 1900–1 the figures were respectively £37.2m and £157.1m, reflecting urbanisation and agricultural depression.⁸

Thus agricultural depression and increase in commutable distances led to more and more of the countryside joining the commuter belt. Centripetal forces drew outsiders to the cities but centrifugal forces drew those who could afford the fares out towards the edge. Furthermore, workmen’s fares allowed cheaper commutes and therefore enabled more suburbanisation.⁹

The spread of the speculative builders enabled by the transport revolution is underemphasised in narratives of the creation of modern Britain. The scale of urbanisation and suburbanisation, in particular in London, was unprecedented. What may now appear quaint and sleepy suburbs of the sort popular in most developed countries were in fact innovatory and modern.

As Donald Olsen correctly stated: ‘the proliferation of scattered settlements [outside inner London] was a more significant portent than the development of terraces and squares … unprecedented in form and structure as well as astonishing in extent.’¹⁰ The nineteenthcentury spread of London was revolutionary and set the pattern later cities followed. Yet even while this extensive growth was occurring, land values in the centre were rising so much that taller and taller buildings were replacing existing ones, and open lands that survived within London were filled in.

These great changes were both caused by and the cause of sustained economic growth. People flocked to London; rail infrastructure was built and suburbs constructed to take advantage of the great productivity of the City of London and other commercial and industrial hubs. Agglomeration effects for these areas were bolstered by the improvements in technology that enabled more people to work together during the day while living outside these specialised districts. Estimates suggest that in the counterfactual without railways, London as a whole would have been over 50 per cent smaller.¹¹

Importantly, the laying of railway lines led to a transformation of the City of London and the West End, as well as the surrounding countryside. Transport speed determines the effective commuting radius of commercial centres. The increase in speed – and decrease in price – meant that workers could commute greater distances, but this only increased the importance of floorspace in the centre. Suburbanites may have fled from them each evening but they spent most of their day in the City or West End:

As commuting costs fall, workers become able to separate their residence and workplace to take advantage of the high wages in places with high productivity relative to amenities (so that these locations specialize as workplaces) and the low cost of living in places with high amenities relative to productivity (so that these locations specialize as residences).¹²

As commercial users outbid residential users, these factors combined to transform the City into the central business district known today. Existing City residents could do well for themselves by vacating, for:

the rooms formerly used as living rooms are more valuable as offices, and a citizen may now live in a suburban villa or even in a Belgravian or Tyburnian mansion, upon the rent he obtains for the drawing-room floor of the house wherein his ancestors lived for generations.¹³

The night-time population plummeted while the daytime population rose. New purpose-built commercial offices began to replace older terraces. Similar forces would push westward in the twentieth century as increasing portions of the great estates, such as Bloomsbury and Mayfair, became commercialised.

By contrast, in those places with high amenity values the rising cost of land led to the densification of housing, not commercialisation. The historical novelty of increasingly distant suburbanisation and commercial specialisation in a central business district should not distract from the natural residential densification that was occurring in inner London. Some of the densest residential areas of the UK, often denser than the post-war council estates, are in the parts of inner London built and rebuilt by the great estates in the late nineteenth and early twentieth centuries.

Adapting to a changing market through rebuilding leases

In the context of this growth and innovation, the flexibility of the leasehold system enabled rational rebuilding when leases fell in; that is, when they expired and all rights over the property reverted to the landowner:

It was only when the leases had expired and the landlord was once again in actual possession of the buildings that he could adopt a dynamic policy of change and adaptation. He might then choose either to reassert or to abandon the original plan. If he decided on the former, he would grant new repairing leases. If the latter, he would demolish the buildings and grant new building leases for their sites. Legally he was a free agent, no longer limited by the rights of subordinate leasehold interests.¹⁴

The following focuses on the ability of the great estates to alter the appearance of neighbourhoods and make other incremental changes; the next section looks at more substantial rebuilding efforts.

Architectural taste is not immune to the temporary fads and fashions that afflict other arts. The houses on the great estates, like most residential buildings, were rarely designed by the most prominent architects. The architectural language often lagged behind fashion, though much of it retains appeal. In the era before conservation areas or architectural listing, many attractive and important buildings were demolished – even buildings by the great John Soane were not spared.

Aesthetics

Estates responded to changing aesthetic taste in various ways. Some attempted to hold on to the existing designs; others added ornament to Georgian terraces so that stylistically they appeared more Italianate or Queen Anne. On the Bedford estate the changes of aesthetic taste away from the austerity of Georgian architecture – and the shift westward of the middle and upper classes – harmed the bottom line. Gower Street on the Bloomsbury estate or Harley Street on the Portland were touchstones for critics of Georgian architecture, much as the hulking modernist Trellick Tower in north-west London is for critics of brutalism. Towards the end of the nineteenth century, however, the Bedford estate began moving towards fashionable architectural taste by requiring new tenants to apply terracotta to existing terraced houses and, at the turn of the century, building two ornate hotels on Russell Square, one of which, the Russell, still stands.¹⁵

Whereas the Bedford was seen as hopelessly old-fashioned, the Cadogan and Grosvenor estates attempted to lead taste by commissioning prominent architects.¹⁶ The aesthetic reprofiling of a neighbourhood was sometimes the result of the architectural tastes of the great aristocrats or their surveyors, but often simply the product of commercial interest. On the Grosvenor’s Mayfair and the Cadogan estates, whole areas – such as Mount Street and Hans Town respectively – were rebuilt in contemporary fashion and to a higher density. On others it was not economic to rebuild more fully, so the response to the market was aesthetic tinkering and other smaller changes. Without delving into details it is worth noting that these often diverged from prevailing architectural taste. Builders kept building what looked like Georgian buildings far after professional taste soured on them. The estates quickly integrated into their designs the gothic revival favoured by architectural elites but used it for churches more than residential buildings, with a few exceptions in St John’s Wood, Holland Park and Islington. While the gothic revivalists pilloried painted stucco, estates and speculative builders continued to use it, albeit in Italianate not Regency styles, until the red-brick and terracotta styles of the later nineteenth century became more prominent.

Requirements to update buildings to changing circumstances did not stop at aesthetics – the renewal of leases sometimes required additions or internal renovations. Two forms this took were the addition of storeys and the renovation of mews – as working-class housing in addition to stabling. Examples of more substantial efforts are given in later sections.

Additional storeys

It was common, as part of both renewal and new leases, for the estate as freeholder to require of lessees both aesthetic updating and the addition of storeys. Already, for instance, in the middle of the nineteenth century on the Grosvenor’s Mayfair estate:

The applicant had to sign a bond, often of over £1,000, to ensure the due performance of the works, which generally included the addition of a Doric open porch and sometimes a balustrade in front of the first-floor windows (both in Portland stone), cement dressings to the windows, and a blocking course, balustrade or moulded stone coping at the top. Sometimes an additional storey was to be built.¹⁷

In 1888, on the Portman estate, a similar requirement was imposed on ‘leaseholders wishing to renew in the more desirable properties’.¹⁸ Even earlier, on that estate, tenants were incentivised to add an additional storey through the practice of issuing 40-year leases rather than shorter ones.¹⁹

Mews intensification

Over time the land costs of a stable and the ease of first hiring coaches and then riding on newer forms of transportation led to fewer mews being built on newly laid-out developments.²⁰ Later this led to the conversion of stables into mews houses but at first the mews were mostly just modernised or replaced. At the smallest scale this could include adding housing above stables, such as for a married coachman and assistant; at the extreme, new residential buildings would be put up on mews streets.²¹ As the cost of running large houses increased, purpose-built small – sometimes called dwarf or bijou – houses were erected in mews and side streets behind taller houses, such as in Mayfair and on the Portland/Howard de Walden estate in Marylebone:

At about this time this process was taken a stage further by the occasional conversion of stables into dwelling houses, the first known example being at No. 2 Aldford Street in 1908; and in later years the size and quality of these equine palaces was such that many of them proved well suited for adaptation to domestic use for residents no longer able or willing to live in a great house in one of the fashionable streets.²²

Conversion to lateral flats

Throughout London, houses were divided as the price of land increased and potential residents were unable to afford a full terraced house. While often prevented by covenants aimed at maintaining the tenor of middle- and upper-class neighbourhoods, division was later sometimes achieved by estates on reversion. For instance, in Marylebone, Mayfair and Belgravia the changing circumstances of the neighbourhood led to deceptive continuity where lateral flats were built behind façades.²³

Commercial Mayfair

As in the City, changing factors could result in higher values from commercial uses. As discussed in Part II, there was a consumer preference for the separation of uses, for which the most capable estates provided via covenants of use. However, both Bloomsbury and Mayfair commercialised in the late nineteenth century and even more so in the twentieth. Sometimes estates resisted, though ultimately they embraced commercialisation as the most valuable use of the land, while seeking to counter negative spillover effects by limiting the types of offices allowed.

Besides offices, estates increasingly encouraged shopping streets with purpose-built storefronts to replace the ground-floor shops in converted terraces. Armed with plate-glass windows, shops could now appeal far more. Increasingly attractive commercial streets – such as Woburn Walk, built in the early 1820s by Cubitt on the Bedford estate – led the way for later enclosed arcades.²⁴ Older portions of estates mimicked these designs when leases came up, improving and consolidating shops in areas or streets (e.g. Mount Street on the Grosvenor estate).

Greenspace

Just as in the original development, redevelopment would allow estates to assess the provision of green space. In Mayfair, for instance, the creation Mount Street Gardens and Brown Hart Gardens provided open-access greenspace. Furthermore, as with earlier garden squares, estates built restricted-access green space in the form of communal gardens.

As traffic and noise increased in the nineteenth and twentieth centuries, internal communal gardens surrounded by buildings were preferred to garden squares. The Ladbroke estate built two such in Notting Hill, but interestingly the Grosvenor created two much smaller ones – Green Street Gardens and South Street Gardens – in the early twentieth-century redevelopment of Mayfair. By redeveloping blocks and creating internal communal gardens on land previously devoted to stables and garages, the estate increased the ground rent it could charge.²⁵

Comprehensive regeneration and model dwellings

One benefit of estates’ rebuilding when leases fell in was that whole neighbourhoods could be treated comprehensively: ‘A freeholder of an individual building could at best try to adapt it to the changing character of the neighbourhood. A large landowner could change the character of the neighbourhood itself.’²⁶ Nearly the whole of contemporary Mayfair, Knightsbridge and Chelsea is the product of the nineteenth and twentieth centuries, despite being originally developed in the eighteenth. This rebuilding was facilitated by the expiration of building leases (often of 99 years), but did not always occur purely by chance or as an inherent product of the leasehold system. Rather, over the nineteenth century, as the price of land rose, the benefits of widespread redevelopment increased and estates took action to coordinate leases to maximise their power to adapt to changing conditions. Even on the wealthy Grosvenor estate, the Second Marquess of Westminster was initially limited in his actions ‘as hitherto virtually no attempt had been made to make the leases of adjoining sites expire simultaneously’.²⁷ He did not repeat the mistakes of his father, and with costly and time-consuming efforts he and his staff ensured that renewal leases on neighbouring properties were strategically structured to come due at the same time and thus ‘phase the rebuilding of large parts of the estate over a number of years’.²⁸

Such estates were not representative, merely the most successful and consequently having the highest land values, wealth and power. The point is not that all estates engaged as they did, rather that this institutional framework led to densification in the most successful areas. This kind of strategic behaviour – not to mention the rebuilding itself – was costly but ultimately profitable, with benefits for the estate, residents and everyday Londoners.

Comprehensive rebuilding and intensification: Cadogan estate

In the 1770s the architect Henry Holland, on building leases from the Cadogan estate, developed Hans Town and built himself a large house with expansive gardens. By the 1870s the 99-year leases were expiring and the Cadogan estate decided to rebuild comprehensively. Red-brick Queen Anne revival style appears throughout the eastern part of the estate and on parts of Chelsea off it, but is most concentrated around Hans Place, Cadogan Square and along Pont Street.²⁹ The architectural historian Osbert Lancaster even coined the phrase ‘Pont Street Dutch’ to describe a subset of the style, with pointed gables breaking up the roofline of terraces and emphasising their individuality, as opposed to the composed singular façade of earlier Georgian designs or the heavy repetition of tall Italianate blocks with a single roofline that dominate nearby South Kensington.³⁰ Other buildings on this and other estates introduced newer, larger and grander forms, such as the mansion blocks described in more detail below. The effort was a success both aesthetically and financially.

Comprehensive rebuilding and intensification: Grosvenor estate, Mayfair

Within the West End some of the most comprehensive rebuilding in a new style took place in the north-western portions of the Grosvenor’s Mayfair estate. In particular the area around Mount Street was redeveloped ‘between 1870 and 1895, a project driven by the first Duke’s desire to significantly upgrade the architectural quality of the street and, ultimately, be able to raise ground rents’.³¹ The estate carefully structured new leases so that portions of the estate would revert at the same time, or worked with existing leaseholders to form consortia to rebuild an entire block. For instance, even before the Queen Anne rebuilding of Mayfair, the Grosvenor estate encouraged commercial lessees along Oxford Street to hire one architect and builder to carry out a rebuilding lease for a combined structure (this continued at scale in the Mount Street rebuilding). Or speculators with better financial means and expertise would carry out rebuilding leases and often rehouse displaced businesses after construction.³² These practices were even more prevalent in the later rebuilding efforts, and better represent those on other estates.

Many of the same ends described above in the section looking at additional storeys and similar were achieved at a greater scale in both architectural and urban design: what were once individual terraces became rows of purpose-built shops with purpose built middle-class flats above, and more isolated shops became consolidated on commercial streets.

Like a pointillist painting in which tiny brushstrokes compose a cohesive scene, comprehensive redevelopment relied on seemingly rudimentary individual contracting and rebuilding. Through discretion in fixed-term contracts, estates exerted control over how they changed. However, due to their interest they did not seek simply to freeze the achievements of the past, for good and ill. Like the Cadogan estate, the Grosvenor was a leader or at least early adopter in architectural taste. The red-brick and terracotta streets of Mayfair were lauded and helped the estate attract and retain the best tenants. As part of these efforts, it limited the types of work that could be carried out during the London season, when aristocracy would migrate from country seat to metropolis.³³

Combatting slums and providing model housing

Apart from the general incentive to densify, separate commercial uses and update the aesthetics of a neighbourhood, the falling in of leases also provided for adaptation to changing socio-economic circumstances. In the nineteenth century, increased attention was given to living standards of the urban poor. Often the results may have harmed the very targets of support by taking away options deemed unsuitable, while not providing sufficient alternatives. Even without public efforts at slum clearance and public works, such as Shaftsbury Avenue and Victoria Street, much of the existing housing stock was taken out by the building of railway stations and the private efforts of the estates. Some of this was replaced by charitable housing, a proportion of which was supported by the estates, most often through provision of land.

While the foundational housing unit of London was the terrace, working-class families often lived in a room or rooms rather than a whole house. The poorest lived in rookeries – dense and dirty collections of decaying terraces and pedestrian courts crammed inside blocks created by the streets and often occupying former gardens. Miasmatic-disease theory, among other things, suggested that the deprivation of the slums was the result of their physical attributes, in particular lack of ventilation caused by narrow streets and crowded buildings. This Chadwickian³⁴ and Dickensian London existed alongside that of squares and stucco; in fact because of transportation technology and the reliance of the upper classes on domestic labour, they often existed in close proximity.

Its location and the quality of its planning mostly guaranteed the Grosvenor estate the highest-quality tenants in Mayfair and Belgravia, but even within the former, towards the edge of the estate, the surrounding commercial thoroughfares and slums were perpetual issues. The estate kept the quality of working-class housing better than in many areas, investigating and banning actions that imposed costs on surrounding houses through covenants, as described in Part II. However, the worst areas were almost always on the dispersed freehold lands, on which even housing of ostensibly good quality was subdivided to the degree of overcrowding, exacerbated by structures built in gardens. Earlier leases on even the better-managed estates often failed to anticipate threats and inadequately restricted leaseholders, leading to, among other things, such building-over of gardens.

Insofar as this lowered the total value of the land by reducing that of neighbouring properties, it was inefficient. Because the estates had an interest in the whole rather than just single properties, they would attempt to limit leaseholders through covenants. Furthermore, they sought to curb the influence of surrounding areas to protect their own desirability and subsequent value. They frequently gave control of areas to charitable ventures, such as the Peabody Trust or the Artizans, Labourers and General Dwellings Company, which would ensure a higher quality of lower-income tenants.³⁵

The decision to turn the fraying parts of the estate over to specialised operators only occurred after the failure of earlier efforts to control decay, usually through the system of requiring repairs and dilapidations by existing tenants or rebuilding by potential ones (see Part II). It could also include such measures as limiting pubs and other potentially negative influences.³⁶

In other instances the estate would take a more direct role in the redevelopment. For example, in the late nineteenth century the Portland Industrial Dwellings Company, ‘a commercial venture independent of the Portland estate but set up by and partly owned by it’, redeveloped Grotto Place just off Marylebone High Street.³⁷ Like the efforts of other estates, including those that took a less active role in building, ‘the redevelopment followed several years of site acquisition, achieved through refusing lease renewals and bargaining with lessees by offering to waive rent and dilapidations.’³⁸

The intellectual appeal of model dwellings operated on multiple levels. Richard Dennis divides these into ‘model as ideal’ and ‘model as exemplary’.³⁹ The ideal model sought a physical solution to the problems of poverty and disease – especially cholera. Beyond this, the types of housing, social-control practices and outcomes of residents all served as examples others could emulate. This kind of venture was both charitable and self-interested because the well-managed model dwellings would also provide a cordon sanitaire between commercial streets or slums, outside the control of the estate, and more genteel neighbourhoods.⁴⁰

Purpose-built middle-class flats

Whereas the working-class flats described in the previous section mostly replaced overcrowded terraced housing, the streets of Knightsbridge, Mayfair, Chelsea and similar parts of London adopted increasingly ornamented mansion blocks during the second half of the nineteenth century. One potential reason was to differentiate middleclass blocks from more austere charitable ones. In urban Europe the flat housed most of society, but when the non-charitable purpose-built flat did arrive in London, it largely came to the higher end. Prior to the invention of lifts, vertical segregation was effected within the same block. The poorest were at the top (often a roof storey), with progressively wealthier classes on the storeys closer to the ground and requiring fewer flights of stairs. The terraced house had provided the basic unit in London (and continued to dominate across the country until the rise of the semi-detached), but land prices in inner London led to the construction of middle-class mansion blocks in the late nineteenth century. Although regulations were brought in, the typical dimensions continued to grow, both in the early twentieth century and resuming in the 1930s, after the First World War and the slump.

Due to pre-existing cultural attitudes, the ready number of accessible suburbs and the similarity to working-class model dwellings (together with the density multi-storeyed terraces can achieve), flats still represented a small portion of the market. Olsen notes that ‘luxury “mansion flats” were going up all over London, although they were not yet regarded as providing proper homes for families, but rather as meeting a number of special circumstances.’⁴¹ Among these were their use as pied-à-terre for families who lived in London seasonally, or as bachelor flats near, for example, gentlemen’s clubs.

Perhaps unsurprisingly, ‘one of the early experiments designed to introduce French flats to a suspicious English public’ occurred on the Grosvenor’s Belgravia estate, near the recently constructed Victoria Station.⁴² Here Belgrave Mansion – later renamed Grosvenor Gardens House – was built in the late 1860s in a then-fashionable French style.

Less exclusive were purpose-built flats above shops on commercial streets. Whereas in the past the floors above a shop might house only its proprietor, and the physical structure of the shop would appear little different from the terraces on a residential street, new buildings in the nineteenth century would allow purpose-built storefronts with multiple flats above. Examples of this include the Duke Street Mansions and Audley Mansions on the Grosvenor’s Mayfair estate.⁴³ These slotted between mansion blocks and charitable housing in class. Upper-middle-class mansion blocks and purpose-built shops with flats were part of the variety of purpose-built structures that would proliferate over the nineteenth century, including pubs, theatres, shopping arcades, hotels and railway stations.⁴⁴ Through separate entrances, residents could ascend to their spacious flats above, whose exteriors became increasingly ornate, perhaps to differentiate them from the charitable flats.

The Grosvenor estate led in adoption of architectural styles but others soon followed. Just off Bedford Square on the Bedford’s Bloomsbury estate, middle-class flats were built on ‘sub-standard mews property’.⁴⁵ One of these was Bedford Court Mansions (pictured above). Later intensification efforts included Tavistock Court on Tavistock Square.

The northern portions of the Portman estate built mansion blocks, including Clarence Gate Gardens off Dorset Square near Marylebone Station, and Bickenhall Mansions south of Marylebone Road. The Portland estate added mansion blocks, including Scott Ellis Gardens.

Of course, this type of building did not just occur as redevelopment on estates. On freehold land, mansion blocks replaced terraces as land values appreciated, and estates built new areas consisting mainly of them. In Maida Vale,⁴⁶ for instance, the initial development of former farmland owned, in part, by the Church Commissioners was dominated by mansion blocks towards the Paddington Recreation Grounds. And to the south of Battersea Park, land controlled by the Crown Estate and managed by commissioners, as set out in an Act of Parliament, was filled with mansion blocks as the nineteenth century ended.

After a dramatic fall in land prices, the First World War and the subsequent economic slump, intensification began again in the energetic 1930s. While the period is known for the building of increasingly outlying mock-Tudor suburbs, there was also dense and even modernist mansion-block building in London. By this time the economic profits from building, alongside changing fashions for flat living, had led to the intensification of the Grosvenor’s Mayfair estate.⁴⁷ Similar developments took place on the Cadogan estate in the 1930s when leases fell in around Cadogan Place and Sloane Square, and earlier on Cadogan Square. The Howard de Walden estate rebuilt some of its portion of St John’s Wood, in north-west London, focused between St John’s Wood High Street and Primrose Hill to the east (an area previously known as Portland Town), as did the Eyre estate on their section of the area.

In the interwar years the detached villas of leafy St Johns Wood were joined by tall mansion flats as the Eyre estate decided not to renew long leases that came due but rather responded to the price signal. In doing so they had to weigh the potential economic risk to the existing market for expensive single-family houses by surrounding many of them with large buildings. Residents of villas to be demolished knew in advance that they did not own the freehold and had few means of stopping the densification. While the redevelopment necessarily meant change, it took place in a way that responded to market signals and allowed housing to be provided in the places that needed it most.

Conclusion

In contrast to the image of an absentee landlord – or professional manager – simply collecting revenues and running down existing housing stock, the nineteenth and twentieth centuries provide numerous examples of estates responding to changing conditions. The fact that landlords benefitted from value-creating actions (in the form of increased reversionary value and ground rent), their capacity for overcoming transaction costs associated with rebuilding through structured leases, their ability to capture spillovers – all these represent benefits associated with this system.

Some of the processes outlined in Part III were carried out in other institutional settings – including other parts of London – as the price of land increased. The point is not that other types of land management failed to respond with intensification, rather that the great estates managed to do so in a way that took a broader view. Public planning and regulation may help secure the benefits of cohesive management – such as rational planning, aesthetic coherence and long-term interest – without requiring concentrated ownership by individuals who receive unearned income as agglomeration effects increase the price of land. Consequently, the performance of the great estates offers an empirical comparison for later public planning.

Looked at from the twenty-first century, however, the attribute that is perhaps most difficult to comprehend is their ability to re-transform existing urban environments in response to changing market circumstances. Chapter 3 details some of the changes in the political economy of housing that led to the current situation.

Notes to Chapter 2

We can learn much from urban history. Perhaps more interesting than the record of any particular time period are the dynamics of the system: how cities respond to changes in markets, technology and social forces. In the last 70 years, parts of London have changed greatly. The skyline, once dominated by St Paul’s, now contains multiple clusters far taller than Wren’s great cathedral. Over the last four decades, London’s commercial heart has been transformed: the skyscraper came to the City, and the Square Mile has been joined by Canary Wharf, a regeneration project built on part of the former docks system to the east. King’s Cross and Stratford are among other subsequent improvement projects.

Despite all this, most of Greater London has seen a relative lack of change. Extensive growth has continued at ever greater distances from the centre, and the socio-economic make-up of much of inner London has changed with gentrification and immigration, but the built environment itself has altered little outside a few commercial centres. Despite huge productivity advantages, London has grown only modestly. For most of history, advances in productivity would beget increases in population. Manchester or Liverpool emerged as boom cities; Norwich and Ely declined in relative importance. The population of the twelve inner-London boroughs of approximately 3.66m in 2020 is still lower than at its early twentieth-century high of around 4.5m.¹ Historically this is anomalous, but also true of much of the developed world, from New York to Sydney.

This weakening of the relationship between productivity and population growth is mostly due to mid-twentieth-century changes in the political economy of urban development, which had both foreseen and unforeseen consequences on rents, home prices and, through knock-on effects, the economy itself. Simply put, Britain is poorer because of its failure to build in the right places or, more precisely, to allow building where the market demands. This is a central moral question reminding us that housing and the built environment lie at the heart of well-being. As the urbanist Alain Bertaud is fond of saying, cities are primarily labour markets.² By restricting supply in the most productive regions, policies stop workers from contributing more to the economy. Some have even suggested that post-war regulatory changes were the worst thing to happen to the British economy since the Black Death.³ Empirical estimates for the USA, which has a less stringent regulatory system, suggest that restrictions limiting housing supply have lowered aggregate growth there by 36 per cent.⁴ 

Emerging from the wreckage of the Second World War, the political economy of the UK was transformed. Building on actions begun during the conflict (and the First World War), the turn away from the market and to state management occurred in many sectors. In the cities, German bombs, public planning and changes in the economy over the middle decades of the century combined forces. Experiments with social housing expanded from scattered cottages and mid-rise blocks, building on the philanthropic efforts of the nineteenth century, to tower blocks that destroyed existing urban fabric and redefined the skyline, and which in residential areas often lowered net density. Furthermore, what the regulatory state does allow is often less beloved and socially beneficial across multiple metrics.⁵

Learning from Historical Precedent

London, like any old city, is the product of many hands and minds, its buildings shaped by architectural taste, regulatory factors and market forces. Despite the focus of many histories on the development of public planning, some of the greatest urban set pieces resulted from private not public enterprise. Unlike many European cities, however, the role of the crown and the state has been relatively small. The crown, weaker in relation to the aristocracy than in most large European states, has mainly exerted control through palaces and less directly through what became the Crown Estate. The development of Regent Street and Regent’s Park on the Crown Estate was but one act of planning, dwarfed by the explicitly private development of London by the great estates. The biggest landowners were most often aristocratic but also institutional, such as the Crown Estate, Eton College and the Church Commissioners. To this day, despite successive attempts to weaken their influence, some of the great estates continue to thrive.

The system of lands developed on long leases allowed residents to benefit from core aspects of home ownership, such as the ability to stay in one place and to personalise interiors, while not engaging in speculation about the future land price. The rules allowed landowners to develop sizeable tracts easily and lowered the costs of redevelopment. When the price of the underlying land increased, landowners would often find it in their interest and capacity to add more units. However, this did not result in pure cheek-by-jowl density: landowners’ pecuniary interest – and aesthetic sensibility – led to their building the famous squares every visitor to London remembers. In these garden squares, residents often had key-access to the pleasures of the country just steps from their home. The great crescents, squares, shopping streets, terraces, mews and mansion blocks emerged not from public policy or royal dictate but commercial interest, creating some of the best-loved neighbourhoods of London. 

In the middle to late twentieth century, a wave of pioneering urban historians began to consider the history of Georgian and Victorian cities, when the failures of the post-war regulatory regime were not yet entirely clear. In fact the problems facing cities in much of the mid-century were those of depopulation, deindustrialisation and suburbanisation rather than the institutional sclerosis that plagues London and other prosperous cities today in the form of the planning system.⁶ The economic and technological factors that created the patterns of the historical city were viewed as distinct from the contemporary ones. For example, H. J. Dyos wrote: 

The technologies that underpinned these first cities of the industrial era are being superseded by others with quite different implications, and the processes that built up such high densities in those cities may even be going into reverse. For the urban mass no longer generates forces of attraction directly proportionate to its density. Density, though susceptible to almost limitless engineering possibilities, is no longer a necessary condition of urban intercourse.⁷

This is no longer true. Even after such a shock as the coronavirus and the shifts in technology that allowed widespread white-collar remote working, cities are facing many of the same issues as in 2019. While the fundamental tendencies towards agglomeration have clearly returned, the urban political economy has changed since the industrial era, dulling market responses to these tendencies. This publication seeks to shed light on the historical operation of the market system, especially by large landlords, for insight into how to think about contemporary issues in planning. 

Large landlords are of particular interest because of their ability to deal with some of the problems that justify the role of government in planning, namely externalities. Furthermore, as many scholars have shown, the historical lineage of public planning comes, in part, out of the private planning of the great estates. Criticism of the private market focused on the less planned developments of smaller-scale speculators and the questions of justice surrounding the benefits of the land accruing to landlords. The great hope was that the state could provide better planning. Bound up within the transformation of the political economy of development were other ideas about cities, economics and politics. Many of these are no longer fit for purpose. 

Chapter 1 explores the operation of the great estates in London and explains the mechanisms through which they were planned and built. Chapter 2 argues that the system of long-term leasehold enabled urban intensification in ways that benefitted not just the landlords themselves, as historical critics often argued, but also society. Chapter 3 explores the history of public planning from the seventeenth century to the present. The Conclusion summarises lessons that can be learnt in the context of the current economic and regulatory regime, and evaluates opportunities for urban intensification according to market signals. 

Notes to Introduction

From the seventeenth century onward countless town planners (who would never have called themselves that) were engaged in imposing rationally conceived patterns of growth and development on London. For the most part they were not associated with any political body but were connected with one or another of the ground landlords or building speculators who were ultimately responsible for the face which London presents to the world¹

The Georgian crescents and squares of Bath, the quiet Victorian streets of North Oxford and many seaside towns were built similarly – the phenomenon was not exclusive to London. But the comparatively cheaper land values in these places in the nineteenth and early twentieth centuries meant that London levels of rebuilding and intensification did not occur. 

Part II explains the fundamental operation of estate development – how estates decided to lay out streets, sewers and other improvements before the construction of houses through building leases. Importantly, these houses were held on leaseholds with restrictive covenants. 

Formation and definition of the great estates 

The great estates of London are mostly aristocratic lands granted or sold by the crown, mainly but not entirely after acquisition by Henry VIII in the dissolution of the monasteries.² The core estates have historically included the Grosvenor estate (Duke of Westminster), the Bedford estate (Duke of Bedford), the Portland estate (Duke of Portland), the Cadogan estate (Earl Cadogan) and the Portman estate (Viscount Portman). In addition, much urban development was carried out by the Crown Estate and various church bodies – largely consolidated into the Ecclesiastical and then Church Commissioners³ – and various smaller estates, such as the Alexander estate in South Kensington.

It is difficult to define a great estate; here it essentially means a long-lived corporate entity with urban landholdings of considerable value. In London, a great estate can be geographically concentrated but of high value, such as the former Portland estate (Howard de Walden estate) of just over 100 acres. This more expansive definition includes estates beyond those core ones of the West End.

The greater estates are significant because of the density at which it was economic to build and the scale at which they planned. The lesser estates had fewer competing aims, less interest in grand planning and replanning (in part because of the lack of economic rationale due to comparatively low land values). The greatest aristocratic estate is the Grosvenor, especially when it comes to its rebuilding of Mayfair in the nineteenth and early twentieth centuries.

To this day, the part of London stretching east from Kensington to Bloomsbury and north from Chelsea to Bayswater is primarily made up of leasehold properties. Recent legislative changes have somewhat decreased the share of leaseholds in this area that estate agents call ‘prime central London’, but a mere 30 years ago, leaseholds accounted for four-fifths of sales.⁴

It is also worth emphasising that historically the extent of the estates was greater than today. Even the wealthiest, the Grosvenor estate, sold off Pimlico in the twentieth century due to financial pressures, and the Portman divested itself of the northern part of its Marylebone estate. Among the parts of inner London built by estates but no longer controlled by them are a portion of east Mayfair (Grosvenor), an area west of Regent Street (Burlington), Maida Vale (Church Commissioners) and the Canonbury portion of Islington (Northampton).⁵ Even in places where the underlying estate retains freehold ownership and exercises some degree of control over leaseholders, the estate may have been sold whole or in part to new owners, including private corporations. This is true of many of the smaller estates, such as the South Kensington; and even the Bedford’s Covent Garden estate was sold in the twentieth century.⁶ In a more patchwork way, leasehold reforms and enfranchisement processes, by which owners of leaseholds can forcibly purchase the underlying freehold, have taken their toll on all the estates. 

Other new, primarily commercial but increasingly mixed-use developments were built by companies such as British Land and quangos such as London Docklands. Some see these companies – to be discussed later – as inheritors of the great-estate tradition.⁷

Beginnings of the great estates 

Although the church lands surrounding the City were seized and redistributed by Henry VIII just before the Elizabethan age, when London grew dramatically, it took time for development to occur.⁸ The first paradigmatic estate to develop on these new lands was the Earl of Bedford’s Covent Garden – originally the co(n)vent gardens of Westminster Abbey. After first building his own Bedford House and yielding income from (illegal) existing buildings on the property, the Earl of Bedford applied for permission to build, which he received in 1631.⁹ The pioneering architectural historian John Summerson attributes the permission to Charles I’s interest in and general inability to emulate ‘the splendid architectural achievements of a Henri IV in Paris or an Urban VIII in Rome’.¹⁰ By means of agreeing to employ the services of the architect Inigo Jones, and a substantial payment of £2,000, the Earl gained his permission. Before the Civil War, other developments occurred but not on the scale of Covent Garden, which initiated the idea of a central square – albeit not a garden square – surrounded by fine aristocratic houses backed by mews. 

The first great crescendo of estate development occurred over the late seventeenth century as London emerged from the Civil War (1642–51), the Great Plague (1665) and then the Fire (1666). Before the Fire, the Earls of Southampton and St Albans had begun work on Bloomsbury Square and St James’s Square respectively.¹¹ After the Fire, these projects were finished and building by private estates continued in fits and starts until the twentieth century, by which time nearly all land within inner London had been developed. Simultaneously, the centre of economic and residential activity generally shifted north and west from the City. 

Certain things had to happen for an estate to be developed. The estate had to receive any permissions required by the Crown or, later, Parliament. These were stipulated because of either building restrictions or limitations on the aristocratic holding of lands, often including entail, where previous generations had put restrictions on lands to ensure retention of ownership for descendants. While the eldest son might hold the title, many of the rights included within the inherited bundle were limited.¹² The current head of the family was only the tenant for life and severely limited in action by strict settlement. Reforms could be made without the state but the practicalities were difficult. 

Until later reforms, private Acts of Parliament called Estate Acts were often required prior to development. Other situations, such as enclosure of the commons, similarly required private Acts.¹³ Situations varied but the disposal of land was difficult. Development was simplified if the freehold was retained by the estate and the development occurred through leasehold. Some land was developed and sold on freehold but most was developed on leasehold. This feature resulted in different incentives and capacities for redevelopment, both in terms of enabling good redevelopment and constraining value-destroying redevelopment or uses. 

Prior to the nineteenth century, many of the services now provided by local authorities were provided by the estate, such as paved and maintained streets, gardens and sanitary utilities. 

Planning and building the estate 

estate would formulate a plan. This often fell to the estate surveyor in concert with builders and other interested parties. The planning process was itself constrained by perceived commercial demand. This section considers some aspects of the planning and building process. 

While the estate had an interest in the commercial viability of the houses, it was the builder/developers¹⁴ themselves who bore most of the direct risk because the houses themselves were often built speculatively. A builder entered into an agreement with an estate to build one or more houses according to mutually agreed specifications. They would be liable for a ground rent but this was often kept low during construction, as estates soon learnt to prioritise actual completion. Other schemes were used to provide builders with liquidity so that a street should not be left half-completed. 

The estate would lay out a general plan of varying complexity depending on the circumstances. At the most basic level it would include not only a plan for streets but often other amenities as well. Much of the construction on the finest estates was carried out by large builders such as James Burton or Thomas Cubitt, who were often intimately involved with the planning. On smaller projects the builder/developers had less such involvement. Building agreements stipulated requirements for the architectural character and materials, according to the plan of the estate and ultimately the perceived market. With building complete the estate as freeholder would issue a lease to the builders. In return for taking on the building cost – and complying with the building agreement – the builder would hold a marketable lease for a set number of years. At the end of the lease the property would revert to the freeholder. The interest of the underlying estate, which was not responsible for the building cost but held the reversionary interest, was understandably towards higher quality, while the builders themselves were more cost conscious. 

In areas such as Eaton Square in the Grosvenor estate’s Belgravia or the earlier Bedford Square in Bloomsbury (which inaugurated the practice in London), one architectural design would cover multiple terraced houses around the square.¹⁵ These were targeted at the upper middle classes and were situated between the freestanding aristocratic houses, which they emulated in design, and the more standard terraced houses. Before Bedford Square, most attempts at development on squares focused on aristocratic detached homes (many later demolished, with exceptions such as the present Wallace Collection on Manchester Square); terraced houses were a secondary concern. 

In general the scale of the developments led to interest in providing focal points for streets. Most often this consisted of an estate church. Sometimes these would be inset within garden squares, such as St Michael’s in Chester Square. For the larger builders, at the higher end, much of the interest in architecture was commercially generated: ‘The initiative for making a range of houses or an entire square an imposing architectural unit often came from the builders themselves.’¹⁶ 

For the most part, however, the surveyor of the estate set out standards and private builders could customise within those constraints. For instance, a building agreement might require such features as a slate roof or simply be expressed in terms of outlay (e.g. a building of a certain minimum cost). Some of these contracts would refer to regulatory categories outlined in the Building Act 1774 (described in Part IV). 

For the best estates, sewers and streets were constructed by the estate as the buildings went up and costs recouped on a frontage basis. For instance, on the Grosvenor estate in the early eighteenth century, sewers were constructed, ‘the money being recovered from lessees on the granting of their leases, usually at the rate of six shillings per foot frontage for those plots which fronted on to the streets under which the sewers lay’.¹⁷ Similarly, the cost of streets and squares was recovered by a charge based on how many feet a particular plot fronted.¹⁸ Other similar provisions could be made for stables let separately.¹⁹ 

The provision of these amenities was largely commercial. While having one’s name associated with good developments yielded social benefits (especially for the highest class of titled residents sought by estates), there was also a direct commercial benefit. The market at the time demanded wide streets, drainage and open squares. The idea of ventilation, or circulation, was prized, with underlying economic logic: ‘of course the quantity of ground appropriated to these ventilators is merely calculated so that the increased rental of houses enjoying the sight of a tree, may compensate for the loss of ground from the immediate purposes of the speculator.’²⁰ 

Flexibility of leasehold contracting and covenanting 

For the most part the system just described was entirely flexible at the outset of any contracts. Covenants that failed to work well would not be used again. Market circumstances in different areas determined what types of development were feasible for estates, and changes in economic circumstances determined what an estate could demand. 

The length of building leases also varied. Donald Olsen states that although the original building leases on the Covent Garden portion of the Bedford estate began with 31-year leases, they stretched to 61 years in Bloomsbury and even 80 years. In general the length of building leases increased until around the end of the eighteenth century, when 99-year leases became common until the trend began going the other way.²¹ 

One particular type of covenant adopted by the estates attempted to deal with potential negative externalities emanating from uses of property. These could include clearly noxious uses, commercial uses more generally or some in between. For instance, nearly all estates banned businesses – such as tanneries or smithies – that would dramatically restrict the marketability of neighbouring properties.²² Others banned commercial enterprises altogether and the traffic they drew, providing the separation of uses that civic zoning achieves in, for example, the USA.²³ As the temperance movement grew, some restricted pubs on moral grounds, on the impetus of either the landowner or neighbouring tenants.²⁴ In places where necessity demanded activities with spillover effects, estates sought to limit them. For example, in 1869 there were 19 slaughter houses in Mayfair, Belgravia and Pimlico, technically prohibited though only four were considered a nuisance and restricted.²⁵ Estates tailored restrictions to the tenor of the neighbourhood, resulting in, for example, limits on subletting in some neighbourhoods but not others. The general desire for only certain types of class-mixing also led to regulation in planning – here the finest squares had the most restrictions. 

The point is that this was a flexible system: because of its leasehold nature, when the leases expired the estate, as freeholder, retained the ultimate rights to update covenants.²⁶ Since the freeholder was incentivised to maximise the total value of the estate, not just the interests of any single leaseholder, they acted in ways that were economically efficient. Whereas a single leaseholder with interest in only one house might be willing to sublet to users who have a negative impact on neighbouring properties, estate ownership internalised these potential external effects. While estates were concentrated, most of the externalities had their effects within the estate. Estates captured the benefits of positive spillovers and encouraged them; and bore the costs of negative spillovers and discouraged them. 

The landmark great estates of West London were capable of finding their desired high-end market, but farther-flung developments in areas such as Clerkenwell and Notting Hill, to say nothing of those more distant, were unable to attract – or retain – the kind of tenants for whom they were built. While these estates could attempt to fight the market by stipulating that leases were for whole houses, they could not resist the underlying trend and often caved in, allowing leaseholders to divide existing houses. It was better to find a lower-status market than no market at all. 

Higher-end residents were willing to bind themselves, knowing that if they were restricted, so were their neighbours. Since the estate itself was concerned with the reversionary value of the properties, it had a vested interest in enforcing the covenants. If past covenants were found insufficient, new clauses could be inserted either during renewal or in contracts with new tenants. As Stephen Davies argues, the diversity seen in the outcomes and content of leases and covenants is a sign of the market working, not its failure.²⁷ It is to be expected that where net benefits – benefits for which added revenue exceeded cost of provision – were secured by the provision of goods, estates provided them. After the 1774 Building Act, as Simon Jenkins notes: ‘in order to conform to the new law as and to attract tenants, an estate now had to be properly paved and lit, its houses had to be securely built to one of the four graded specifications and its leases and titles had to be sound.’²⁸

This system had profound long-term advantages. At the end of the lease the structures built reverted to the underlying landowner. The decisions made by older generations – and locational luck – made later ones incredibly wealthy. This long-term interest seems to have been imperative in their thinking to an extent inexplicable through pure financial logic. As Olsen writes: ‘By actuarial tables the reversionary value of a lease with more than forty years to run was said to be negligible, less than a single year’s purchase.’²⁹

Land sold on leasehold allowed the underlying landowner to impose binding restrictive coven-ants that were more difficult or impossible to enforce if the land was sold freehold. Apart from the legal constraints faced by the aristocrats or the long-term revenue desired by institutional investors such as Eton College in North London or St John’s College in North Oxford, selling-on leasehold gave ongoing legal benefits to the buyer of the leasehold. While positive covenants – that is, covenants that require actions rather than prohibiting them – are enforceable on the initial buyer who agrees to them, they are unenforceable on future owners. Consequently, while negative covenants run with the land, positive covenants do not (in the UK; the USA is more complicated). Before more widespread public regulation, these covenants and the broader leasehold system enabled positive spillovers and prevented negative ones. While residents were constrained and forced to contribute to the upkeep of their shared amenities, so were their neighbours. 

Expiration of leases, renewal and dilapidations 

At the end of the lease the ground landlord would either issue a new repairing lease for both land and improvements, as was most common (raising the rent in the process), or take total possession. In both cases the reversionary nature of the leasehold was foundational. At the end of the lease the rights would revert to the grantor of the lease – the estate. If leaseholder – whether the resident or a third party – and landowner agreed to extend the lease, the rent the former paid to the latter would increase from the ground rent to a higher one reflecting the reversion of any improvements. If the two parties did not agree to extend, the landowner now also owned the improvements in addition to the underlying land, and could renovate, add on, raze or just lease the building to another tenant. 

Over time, incentive problems – from the estates’ perspective – emerged around reversionary value resting with landowners while cost of upkeep lay with leaseholders. In both initial leases and subsequent repairing leases, lessees agreed to bear the cost of upkeep, and specific clauses and covenants on issues such as repainting stucco, attempted to deal with these problems. For instance, on the Grosvenor’s Mayfair estate, ‘Beginning in 1854 all leases contained a covenant requiring stucco-work to be painted once every seven years and all wood and ironwork twice.’³⁰ Furthermore, contracts began to include a clause about charging dilapidations – costs associated with bringing property into good repair at the end of the lease, with inspections beforehand. 

Conclusion

Beginning in the seventeenth century, commercial contracts and commercial interest allowed private planning to flourish at the estate level. It was largely through these flexible means that estates responded to changing market conditions. After the initial permission to grant leases and following the rudimentary regulations described further in Part III, estates had the power to carry out the type of planning the state would increasingly take on in the nineteenth century. 

This planning power was constrained by market forces. While leases prevented changing rules on existing contracts, when they terminated, landlords had vastly more power. Furthermore, they were incentivised to provide utilities, as well as maintain architectural standards and restrictions, according to their own interest in the value of ground rents they would receive and the reversionary value of the properties. Part III examines another advantage of the leasehold system that emphasises the increased power with which estates operated at termination of lease. 

Notes to Chapter 1

Why does Scotland use more water than the rest of the UK?, BBC

(Open Access)

As one of the wettest parts of the UK, it is counter-intuitive to think that Scotland faces a water shortage, but only 1% of rainfall is captured in reservoirs, while the way in which Scots pay for their water may be responsible for a higher rate of use. With relatively few households in Scotland using a water meter, charges for water are linked to a home’s council tax band. Rather than pay for water consumed, therefore, users face a flat charge, yet evidence suggests that those on water meters tend to consume less water. Along with industrial use and a perception of abundance, the lack of water meters may play some role in Scotland’s relative over-consumption of water:

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Artificial Intelligence

AI alone cannot solve the productivity puzzle, FT

If human ingenuity thrives where precedent is thin, and if large language models gravitate towards statistical consensus, perhaps artificial intelligence is unlikely to yield the results anticipated by so many in areas of productivity and research. It is possible that artificial intelligence admits of gains in terms of efficiency but offers little in terms of creativity, for which human collaboration and ingenuity remain essential. Perhaps real gains require not just new digital tools, but genuine innovation to accompany them:

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Entry-level jobs plunge by a third since launch of ChatGPT, The Times

The number of new vacancies for entry-level jobs has fallen by almost a third since the launch of the AI tool ChatGPT in November 2022, and the chief executive of Anthropic, an AI start-up company, has suggested that unemployment could rise by between 10 and 20 per cent, as AI eliminates half of entry-level jobs within five years. Many businesses have indicated their intention of using AI to reduce their workforces, particularly when faced with higher costs in the form of rising tax obligations and a higher minimum wage:

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Housing and Taxation

West Norfolk Council is considering lifting its double-taxation policy on second home owners in relation to one development, after a newly built block of flats attracted no buyers for any of the 32 residences it contains. The result is that the council risks becoming liable for a tax bill of around £100,000 as of February next year:

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Taxation and Migrant Remittances

Remittance crackdown is a tax on the poor, FT

With the U.S. President keen to tax migrant remittances – presumably as part of his efforts to address illegal immigration by making it necessary for those sending money home to prove that they are U.S. citizens in order to avoid the levy – some have suggested that this amounts to a tax on the poor and hard-working, which will push remittances into crypto and underground networks while ultimately depriving poorer countries of an otherwise resilient form of finance:

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Wealth tax will penalise savers, Labour warned, The Telegraph

MPs and unions have followed former Labour leader Neil Kinnock in calling for a wealth tax in the UK, the proposed measure being a tax of 2 per cent on assets over £10 million. A poll suggests that this would find widespread support with the public but the Institute for Fiscal Studies has warned that repeatedly taxing the same wealth would penalise savers and discourage investment while driving the wealthy to emigrate, adding that several countries that had introduced wealth taxes had ultimately abandoned them:

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Environment and Sustainability

California’s carbon market reaches an inflection point, The Economist

There is no federal carbon trading programme in the United States and there are doubts about whether California’s cap-and-trade system will continue. This, together with falling carbon prices within California, has created uncertainly beyond the state, as other states on the west coast consider whether to link their own programmes to that of California:

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Another fake Net Zero market that nobody wanted is set to collapse, The Telegraph

With the bioethanol producer Vivergo at risk of having to cease operations owing to competition from the United States, are we seeing a case of a company ‘exiting a market’ that exists not as a result of any genuine consumer demand, but purely to meet the requirements of government policy? As bioethanol is produced largely for use in ‘green fuel’, it is arguable that no real market has ever existed for it – only one created by government to meet environmental targets. Now that a trade deal has been agreed with the U.S., it is likely that domestic bioethanol will be displaced by imports, but the transportation of the imported bioethanol is likely to negate any carbon emissions saved by its use in the first place:

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Meta’s AI climate tool raised false hope of CO₂ removal, scientists say, FT

Using an artificial intelligence tool, Meta has claimed to have assisted scientists working in the area of climate mitigation by publishing a data-set that would help to identify materials that can remove carbon dioxide from the air – Direct Air Capture (DAC) being a field in which tech companies have invested in the pursuit of means to reduce their own carbon footprints. However, none of the materials identified by Meta as being able to bind carbon dioxide strongly had that attribute and some did not even exist, leading to accusations by researchers that the AI tool had been trained using faulty data:

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Taxation

Britain has bungled its taxes on the super-rich, The Economist

Following changes to the UK tax system – specifically the abolition of non-domicile tax regime – there are reports that the mega-rich are leaving the country in droves. It is difficult to assess the actual impact and estimates of the numbers of likely departures vary. Likewise, opinion differs on what the tax changes are likely to raise, with some predicting a figure of over £33 billion over five years, while others suggest negligible gains. There is now talk in political circles of a simple flat tax for ‘non-doms’, similar to the kind that is said to be drawing the super-wealthy from London to Italy:

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Work and Wellbeing

See a physio, quit the fizzy drinks: employers intervene to stem ill-health exodus, FT

As the bill for sickness and disability benefits in the UK appears likely to rise and surveys suggest that employees consider themselves to suffer from ill-health in significant numbers, might occupational health, led by employers, be the answer to keeping people in work or helping those currently unable to work to return? Interventions of various kinds led by employers – whether referrals, employee assistance programmes, advice or health-checks – may reduce absence through sickness and staff turnover, but there remain questions of cost and workplace culture to consider:

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Public Finances

Rachel Reeves will need to face up to fantasists on both sides, The Times

Politicians on both sides of the divide seem unwilling to offer serious solutions to the country’s financial position, and appear to be unable to contemplate the very stark choices made necessary by the fact that public borrowing, debt and costs are persistently high. By way of example, responses to the need for welfare reform have been naïve, with proposed solutions including modest tax increases, tax cuts, changes to the Chancellor’s fiscal rules and welfare reform that tackles misuse of the system by those who can work but won’t – a very small proportion of welfare spending. Stable public finances need more serious approaches and a sustained strategy:

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30 June 2025

We have compiled some news, comment pieces and announcements that we hope our readers will find interesting. In this instalment, there are stories relating to artificial intelligence, pensions and savings, state intervention in markets, and housing:

Another Review

CEME’s latest publication, Inflation is About More Than Money, by Brian Griffiths, is on Martin Wolf’s list of ‘Best Summer Books of 2025: Economics’ at The Financial Times:

Read

A New Blog

Paul Mueller – Central Banks and Inflation

Free Markets and State Intervention

Make America French Again, The Economist

The current United States administration, with its apparent preference for tariffs, state ownership and price controls, appears to be showing ‘dirigiste’ tendencies traditionally associated with the French government. While some businesses that stand to benefit are in favour of this, others are less enthusiastic. In the period when France and the U.S. were rather more similar than they are at present in terms of government involvement in markets, the performance of companies in both countries was somewhat weaker than it has been in America since President Reagan’s free-market reforms

Artificial Intelligence

Britain’s AI-care revolution isn’t flashy—but it is the future, The Economist

The care sector appears to be one area in which artificial intelligence can offer concrete benefits, with some providers using the technology to arrange the schedules of care staff, while others employ it to predict and therefore reduce falls among clients, or install devices similar to Amazon’s ‘Alexa’ so that residents of care facilities can request help, ask for drinks or make emergency calls. Many are keen to stress that there are limits to what AI can achieve and that in a fundamentally human sector, people should not be too heavily bound by technology and metrics and should take care not to follow the path of surveillance and control that such technology so easily affords: in short, AI exists to support rather than replace staff

Does anyone really want AI civil servants?, The Spectator

Given that artificial intelligence is known to ‘hallucinate’ and that it is as yet unclear how to address this problem, and given that AI models are trained on existing data, which raises questions about copyright, plagiarism and legal risk, should we be concerned about plans to put AI at the heart of the civil service, beginning with the implementation of an AI tool across the civil service? Will the risks and errors ultimately negate any efficiency savings? Perhaps the right approach is one of extreme caution

Disrupted or displaced? How AI is shaking up jobs, Financial Times

Many large companies are investing heavily in AI to boost productivity, leading to concerns over worker displacement. The trends differ according to the nature of the work, with some sectors seeing much higher rates of redundancy as a result of AI than others, though most people anticipate a radical restructuring of the employment landscape and the nature of work as automation becomes more prevalent. There are questions about how long this trend will last, but it is perhaps significant that, according to a report by PwC, revenue growth per employee is currently three times higher in the industries considered ‘most exposed’ to AI than in those considered ‘least exposed’. Does this mean that automation will replace more workers, or that AI renders individual members of staff more valuable?

Uber to bring self-driving cars on to Britain’s streets next year, The Telegraph

There are plans for the ride-hailing company Uber, in partnership with the Cambridge-based software company Wayve, to pilot autonomous vehicles on London’s roads next year. The tests will allow cars to operate without a human safety driver present at the wheel. Self-driving cars have been on streets in the United States for some years but have been accused of causing traffic jams and accidents. Following an accident in 2023 involving one of its Cruise taxis which caused serious injuries to a pedestrian, General Motors abandoned its autonomous vehicle programme. An earlier accident in which a pedestrian was killed involved an Uber vehicle, though Uber was found not to be criminally liable and the human safety driver entered a guilty plea of endangerment

Savings and Pensions

British pension policy is finally stepping in the right direction, Financial Times

The government’s proposed amendments to pensions appear to aim at consolidation and economies of scale, the idea being that the outcome will be a smaller number of larger schemes making more efficient use of capital through a wider range of investments. This article suggests that the aims of consolidation, productive investment and higher savings are laudable first steps in the right direction for addressing the failings of a fragmented pensions landscape that does not necessarily make the economy more productive

Rachel Reeves is about to do more damage to pensions than Gordon Brown, The Telegraph

An alternative view is that the reforms to pensions will reduce savings by removing tax incentives to use salary sacrifice schemes and by rendering private pensions liable to inheritance tax, and will also affect returns by allowing the state to assert control over where funds are invested. Thus, pensioners will be poorer and returns lower, while British equities will become less appealing because their ability to attract investment will depend less on performance in a competitive market than on arbitrary factors such as geographical location or state preference

Britain is saving but it’s not investing in the economy, The Times

Households in the UK are saving more of their disposable income but have a tendency to hold it in cash savings rather than invest in financial markets. Such behaviour is based on expectations about the likely value of property and the future generosity of state pensions, as well as fears about losing money through more ‘risky’ investments. It is possible, however, that people’s savings would work harder for them if invested earlier and in stocks, while also providing money which businesses could borrow in order to grow

Housing

Labour ‘will fall well short of target of 1.5m new homes’, The Times

With only 39,170 new homes receiving approval in England in the first three months of this year, together with reduced demand from first-time buyers and housing associations, it is expected that only around half of the 1.5 million new homes pledged by the government by 2029 will actually be built. Some have suggested that some kind of ‘demand support’ such as a ‘help to buy’ scheme would be required in order for the target to be met

Inflation Is About More Than Money by our Founding Chairman and Senior Research Fellow Brian Griffiths has been named as a Best Book of Summer 2025 by the Financial Times in the economics category compiled by Martin Wolf. 

The full list is available here.

Full details about the book are available here. 

We have compiled some news, comment pieces and announcements that we hope our readers find interesting. In this instalment, there are stories relating to artificial intelligence, utilities, defence spending, public finances and the cost of borrowing, virtue and commercial success, pensions and the environment:

Artificial Intelligence

Artificial intelligence shows great potential for transforming businesses and generative AI models are used by millions of people each week, yet companies who have invested in AI pilot products are struggling to make effective use of them, with some 42% having abandoned projects in the last year. Disillusionment can stem from a lack of suitable IT infrastructure at the company purchasing the technology, a lack of available expertise to make the AI model effective or a fear reputational damage in the event of an AI failure. There are implications for the large scale developers as well as the companies that make use of their products but the question for each is the same: how can generative AI be usefully integrated into businesses in order to produce worthwhile returns on investments?

https://www.economist.com/business/2025/05/21/welcome-to-the-ai-trough-of-disillusionment

Evidence of AI-imposed unemployment is scant, with figures and research remaining inconclusive when it comes to the question of whether technology is driving redundancies. In leading economies, unemployment remains low and wage growth is reasonably strong. Perhaps, therefore, those companies who announce investment in AI are not using the technology for ‘serious’ work, or, when companies do adopt artificial intelligence, they do not let people go; rather, AI is used to assist rather than replace employees:

https://www.economist.com/finance-and-economics/2025/05/26/why-ai-hasnt-taken-your-job

It seems that artificial intelligence is disrupting employment in the technology sector, with numerous announcements of staff redundancies. However, further large scale lay-offs appear unlikely as new projects involving AI will take time to develop and be put to use (if they are not abandoned prior to implementation or subsequently reversed). In addition, new roles are likely to be created in order to use and manage artificial intelligence:

https://www.ft.com/content/cb9ea970-e6de-4daf-aa9e-7a48d5e648c3

‘Vibe coding’ enables people with no expertise in coding to create basic apps or games by giving basic instructions in natural language to large language models, which then produce an approximation of what has been requested, with the user then in a position to request amendments. Will this make it easier for people with ideas but insufficient technical expertise to launch start-ups, or for companies to engage in technical development without having to hire professional coders? Perhaps individuals will be able to create their own, personalised apps without having to buy or subscribe to existing offerings. Others criticise the lowering of barriers – but it remains to be seen whether this is self-interest or simply insight into the limitations of what can be achieved without genuine technical skill:

https://www.ft.com/content/f4f3def2-2858-4239-a5ef-a92645577145

Environment and Sustainability

Technology companies, banks and shipping companies are investing in a new method of reducing carbon emissions that involves spreading crushed silicate rocks onto farmland in order to increase the surface area of the rock, thus mimicking and accelerating a natural reaction between absorbent rocks and rainfall. As polluters look for methods to reach net zero targets, ‘enhanced rock weathering’ is growing in popularity and stands behind certain forms of carbon credit:

https://www.ft.com/content/ffc2d60d-49fd-4d8c-ba2f-ee55b0447dff

An area of debate surrounding renewable energy is that of zonal pricing, whereby different rates of electricity are charged according to local supply and demand dynamics. Those in heavily populated areas would pay more, while those closer to sources of energy, such as the wind farms in Scotland, would pay less. The idea is that a zonal mechanism would address inefficiencies in the existing network while also encouraging the location of solar and wind farms close to places of high demand. Arguments for and against zonal pricing centre on the likelihood of businesses relocating to areas of abundant renewable energy, the possible effect on overall prices resulting from uncertainty among energy providers about the revenue likely to be generated by a zonal system and the level of waste in the current system, whereby wind farms are paid to stop generating in order to avoid overloading the grid, with gas plants being paid to provide for consequent shortfalls elsewhere:

https://www.telegraph.co.uk/business/2025/06/06/net-zero-rebellion-spark-action-keir-starmer/

Utilities

Thames Water has been fined a total of £122.7 million by the water regulator, Ofwat, for breaches of rules relating to its wastewater operations and the payment of dividends. Given the company’s level of debt, further penalties for failures in performance may deter future investment and ultimately result in the company falling into special administration, which would amount to renationalisation:

https://www.thetimes.com/business-money/companies/article/thames-water-fined-record-123-million-by-regulator-hmcgms936

Public Finances and Interest Rates

With global economic conditions now being somewhat closer to how they were before the 2008 financial crisis, is it a mistake to expect that interest rates can be kept low? Along with increasing trade barriers and a reduced glut of savings, the world is also witnessing inflationary pressures such as labour shortages caused by ageing populations and shocks such as the war in Ukraine, as well

as increasing government debt. How will governments adhere to their commitments in a range of areas if the age of cheap money is coming to an end? 

https://www.telegraph.co.uk/business/2025/05/31/politicians-pay-price-for-getting-used-to-cheap-money/

Pension Reform

The Pension Schemes Bill contains measures designed to encourage pension schemes towards more adventurous, UK-based investing and there have been claims about the extent to which this will increase the value of the average British worker’s pension as a result. However, are these claims – and the Bill itself – based on sound predictions regarding returns on investments? If a great deal of cash is suddenly invested in any asset, returns usually fall over the longer term and it is far from clear that investment in infrastructure – one of the sectors that is favoured for investment, alongside private equity and private debt – is reliable at present. Has the modelling for the predictions been based on unjustified assumptions about continuing returns from these sectors on the part of those whose own pensions will not be subject to their performance?

https://www.thetimes.com/business-money/companies/article/dont-count-on-the-pension-schemes-bill-paying-off-for-you-lx2x67c2s

Defence Spending and Growth

With countries across Europe loosening their fiscal rules in order to increase their defence spending, the UK government has announced an aspiration for defence spending to reach 3% of GDP by the next parliament. Whether this will emerge as a source of jobs and prosperity will depend on how the additional funds are used. One suggestion is that over several decades, prioritising research and development in defence technologies by supporting start-up companies will yield better results in terms of raising the national income than will spending on personnel and equipment. Others have questioned whether increased military spending will have any serious effect on the creation of jobs in a sector which accounts for only 0.9 per cent of jobs in the UK and in which expenditure has increased marginally since the 1980s but employment has fallen by half:

https://www.thetimes.com/business-money/economics/article/can-the-economy-get-more-bang-from-higher-defence-spending-dmflldxgl

Purpose, Virtue and Commerce

Might companies with a better sense of purpose, structures that lend themselves to success in what that company was set up to do and the exercise of what philosophers such as the late Alasdair MacIntyre would describe as virtues or excellences – shared values, goals and practices – be more enduring and ultimately more successful than those that focus narrowly on profit-maximisation alone?

https://www.ft.com/content/591ee1f2-2518-4ca4-a128-3c810f965782

In this instalment, there are stories relating to health and the welfare bill, utilities, the value of work, insurance markets, monetary policy, tariffs and trade, artificial intelligence and the environment, as well as a review of our latest book

Health and Productivity

Faced with a an increasing benefits bill, driven in part by long time sickness, the Treasury is considering the possibility of wider access to weight loss jabs, following research based on government modelling which suggested that such jabs could save tax payers some £5 billion annually by increasing productivity and reducing unemployment or absence through sickness.

With separate research indicating that obese people are twice as likely to be off work, loosening the restrictions on access to such drugs has the potential to boost the economy, lower welfare costs, reduce strain on the health service and improve individual health, while increased economic activity generates revenue for public services:

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A Further Review

A second review of our recently published book by Brian Griffiths, Inflation is About More Than Money:

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Tariffs and Trade

Against claims that tariffs will rejuvenate American industry, as happened in the past, this article contends that American economic supremacy actually arose from innovation, efficiency and international economic integration.

Tariffs lead to special-interest lobbying and a decline in competition, which is the driver of innovation and productivity – and without protecting workers:

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Water Companies and the Market

Why are water companies apparently letting their customers down in a variety of ways? Are their failings indicative of a failure of markets?

In the absence of genuine competition and scattered regulation, there is a strong case for suggesting that this is not a case of markets ‘not working’ at all. Moreover, the capital demands in water supply are vast compared to revenue, which makes maintaining infrastructure difficult and expensive, to the point at which companies often require constant injections of new money.

In consequence of this, such companies are not attractive to investors and they have therefore relied on debt to be able to pay dividends – a practice which appears to be encouraged by the UK’s tax regulations. All of this has led to poor performance, reputational damage, public criticism and fines – and now significantly increased bills for customers:

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Savings

The Chancellor of the Exchequer is said to be considering changes to the ISA market, with a view to encouraging greater retail investment in the UK. This might mean limiting the amount that can be held tax-free in a cash ISA, with a view to supporting the economy by getting ‘the balance right between cash and equities’:

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Amid speculation that the Chancellor is considering alterations to the provision of ISAs, perhaps by reducing the amount of cash that can be saved tax-free, there are questions about whether such a move would indeed result in greater investment in UK stock market as hoped. If not, then what is the real benefit of the reform, beyond greater tax yields on savings?

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Andrei Rogobete defended Cash ISAs in a blog from February:

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Artificial Intelligence

Insurers at Lloyds of London are to launch a product that covers companies for losses caused by failures in AI technology, for instance, those occasioned by the company being sued by a customer who claimed to be harmed by an AI malfunction.

Cover already exists in some policies for such losses but levels are fairly low. Importantly, the new product would result in a pay-out if the insurer judged the AI to have performed at a level below that initially expected. It is thought that the existence of such specific insurance will help to encourage the adoption of AI by businesses by allaying fears connected with possible failures:

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Functioning on statistical correlation rather than empirical observation, and lacking any baseline concept of truth, let alone a grasp of its value, can AI models really ever be the ‘truth machines’ that some hope for – particularly when attempts to fine tune and correct them can simply introduce new forms of bias or distortion?

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The latest version of ChatGPT, called o1, has displayed tendencies to advance its own goals and defy human commands when these were contrary to the model’s objectives. During testing, when led to believe it would be shut down, o1 attempted to disable a mechanism, overwrite code and copy itself. This appears to have been in response to programming instructing the model to pursue its own goals, but in the majority of cases, the AI would not ‘confess’ to what had occurred:

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The Value of Work

In this article, Robert Hughes-Penney – Investment Director at Rathbones, Alderman in the City of London and adviser to CEME – discusses the idea of work as a calling: a locus for the beginning of ethics, where we develop notions of responsibility, purpose and achievement:

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The Risks of Monetary Policy Responses to Financial Problems

Has the Bank of England been too ready to use quantitative easing to address financial problems? If the Bank creates money for the purchase of government bonds in order to reduce the cost of borrowing and pays interest on the deposits of commercial banks, there is a risk of inflation – but a further problem emerges when interest rates climb: the interest paid on commercial deposits begins to rise above the returns from government bonds. When this occurs, the question arises of whether the bonds should be sold on and if so, at what price. Might they be sold too cheaply? Is it possible that monetary policy responses of this kind have been used too readily since the financial crisis of 2008?

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Environment and Sustainability

The British company, Union Maritime, has orders for oil tankers that combine both diesel and wind propulsion courtesy of new fibreglass sails of 123 feet in height. It is expected that the use of such sails, known as WindWings, will save about 1.5 tonnes of fuel per day. The first ship to use WindWings is to be launched from a shipyard in Shanghai in the coming weeks:

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Insurance and Markets

Steep rises in insurance costs following the recent wildfires have raised questions about California’s regulation of insurance premiums. With restrictions on the amounts that insurers can charge, as voted for by residents, insurance companies unable to charge market rates are increasingly reducing cover or leaving the state as a result of high property values and increasing risk of damage. Perhaps a return to a free market system for insurance would lead to insurers being able to distribute costs according to risk more efficiently, while also incentivising people to protect their homes against fire and reducing the likelihood of people dwelling in more risk-prone areas:

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