John Kroencke: Proposed Cambridge Extension is Well Targeted

Michael Gove, the Secretary of State for Levelling Up, Housing and Communities, gave a speech on 24 July where he outlined a variety of policies that the government is pursuing to address the fact that too few homes are being built in the places that most need them. This problem impacts housing costs most directly, of course, but is also clearly related to more general problems in the UK. Supply restrictions are most binding in the most economically successful places. Unsurprisingly then, London receives the most attention in UK policy spheres, but right behind it are Oxford and Cambridge. The aspect of Gove’s speech that has (deservedly) received the most attention is his “Cambridge Quarter.” 

It is clear that the highest productivity areas of the country offer the most economically important areas for reforms. It is also somewhat clear that these benefits are not geographically zero-sum (i.e. the marginal resident of Cambridge creates more value because they are in Cambridge) and can also benefit other regions through the tax system. But what I want to do in this blog post is suggest that by the very nature of how concentrated it is the “Cambridge Quarter” may also offer a successful strategy for delivering reforms going forward for both this government and the potential Labour government. 

Dense Urban Extensions Are Nothing New 

First, let me explain the basics of the idea to look to the past (something that may sound simply nostalgic). In his speech, the minister suggests that the urban extension will consist of 250,000 houses and be informed by architectural and urban history. The UK has a great history of urban expansion and densification. In the nineteenth century, the population of the industrial powerhouses in the Midlands and North grew dramatically. London was no small town in 1800 (it numbered 1 million); after a century of decades where the population grew around 20 percent per year, it grew to 6.5 million by 1900. In my own research on the great estates of London, I have looked at how the burgeoning middle class was accommodated in terraced houses and later in mansion blocks and midrise buildings with purpose-built flats.

In these parts of London as in other planned developments for the middle class in parts of Bath and New Town Edinburgh, simply looking at the relatively population density achieved by the builders gives a poor impression of the feel. Mid-rise terraces and later mansion blocks closely grouped together and punctuated by green spaces like squares and crescents do not feel like Kowloon Walled City. Rather, they are the green and welcoming urban environments that many tourists from across the world flock to explore and even aspire to live in. Beyond the UK, Gove mentions the planned parts of Paris and Barcelona in his speech, but even the more unimaginative urban extensions from cities across the world, from Chicago to Amsterdam to Melbourne, achieve dense and agreeable results (especially when renovated by residents with modern incomes and technology!).

Cambridge Should Have Grown More, But Political Reforms Have Proven Difficult

Why didn’t this happen in Cambridge? Cambridge is an example of a place that would have expanded dramatically had the rules surrounding development been different in the last few decades. Research clusters in the sciences and related industries, in particular, have grown dramatically, but they are constrained by the inability to build both lab space and homes for researchers imposed by the political situation through the planning system. This limits the growth of the industry obviously, but it also drives the housing costs for all near these clusters ever higher as those with the best jobs compete for the scarce homes. It is not just the prospective workers who suffer, but also the children of local residents who seek to remain in the area. 

For a number of reasons, in the last hundred years, the type of development and densification that Gove proposes has been much less likely to occur. Supply restrictions mean that fewer houses are built in general, and those that are built are often by large builders on the edge of a town (with the exception of a few high-profile urban regeneration projects like King’s Cross). Two of the most important factors were the growth of cars and the rise of the planning system. As a result of these factors and the (often warranted) backlash to the grand projects of the 1960s and 1970s, we have ended up in a situation full of often well-intentioned but ultimately harmful barriers to growth. Despite intense desire to reform the system (including by planners themselves) there have been many political failures.

Reforms Must Address Concerns

Many reforms fail to seriously address the concerns of those most affected and furthermore there is clear evidence that the mechanisms by which development is stopped are imprecise. The result is that developments delivering net value are stopped. That is, even if you considered the added congestion or other concerns of existing residents, they would (or could) be more than offset by the value created. At the most basic level, think about the marginal addition of an additional story to a block of flats or the replacement of a small house by a midrise building. The increase in value in both scenarios in places like Cambridge or London far exceeds the cost of construction. This offers value that can be used to compensate affected parties.(See: Sharing the Benefits)

It is politically understandable and even defensible for the system to introduce protections from development that impose more costs on existing residents than they generate in value, but the status quo goes beyond that. And because of the difficulty of bargaining, it is difficult for developers to use potential profits to overcome resistance to an individual project or to reform the rules of the game.

To the latter point: the danger in these efforts announced by Gove—like past efforts to improve the situation—is that they can create political backlash. A good example of this is the effort from the conservative prime minister before last, which failed spectacularly in the by-elections in Chesham and Amersham in the leafy commuter belt.

Some positive signs of the political success of the effort can be seen in Theresa Villiers’s praise. Villiers, who represents Barnet, situated at the end of the Northern Line in outer London– famously spoke out about the stillborn algorithm proposed by the Johnson government. The political process and specifics of the Cambridge Plan will ultimately determine whether it succeeds. If so, the government may have managed to stumble upon a workable model: concentrating development in the areas that are most ripe for it and using the value generated by the development to pay for improvements that offset the reasonable concerns of the existing residents.


John Kroencke is a Senior Research Fellow at the Centre for Enterprise, Markets and Ethics. For more information about John please click here.