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Regulation, Rents and ?Iconic Design?: rent acquisition by design in the tightly constrained London office market

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  • Paul Cheshire

    ()

  • Gerard Dericks

Abstract

A 2008 paper investigating the Regulatory Tax (RT) on office development in Britain (Cheshire & Hilber, 2008) provided evidence of very tight restrictions on office space going back at least 50 years. It was also argued that the RT measure tended to underestimate the full costs of restrictive land use regulation since compliance costs would be under estimated. One form of compliance cost could be rent seeking by employing ?expensive design and a trophy architect? to get ?more rentable space per unit area of the site?. This paper finds evidence strongly supportive of this hypothesis and then values the contribution of famous architects to flexing one of the most restrictive planning systems in the world. It uses a sample of transactions in London offices sold between 2000 and 2011 courtesy of the Estates Gazette and Real Capital Analytics supplemented with GIS and building specific data. Trophy architects are identified as those who have won a prize from one of the three major architectural bodies. We employ a hedonic approach and show that i) given the site size a building designed by a trophy architect is more valuable than one designed by a regular architect, but that ii) this arises because such buildings do indeed squeeze more space on a given sized site than those designed by ordinary architects; however iii) the price per m2 of a trophy architect?s building is no greater; that iv) the value of a trophy architect has emerged since 1956 and v) buildings designed by trophy architects predating the introduction of the current planning system are less valuable for a given site.

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File URL: http://www-sre.wu.ac.at/ersa/ersaconfs/ersa13/ERSA2013_paper_01071.pdf
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Bibliographic Info

Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa13p1071.

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Date of creation: Nov 2013
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Handle: RePEc:wiw:wiwrsa:ersa13p1071

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Related research

Keywords: Land use regulation; regulatory costs; rent seeking; office markets;

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References

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  1. Paul Cheshire & Christian A.L. Hilber, 2007. "Office space supply restrictions in Britain: the political economy of market revenge," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 3203, London School of Economics and Political Science, LSE Library.
  2. Wouter Vermeulen & Christian A.L. Hilber, 2012. "The Impact of Supply Constraints on House Prices in England," CPB Discussion Paper, CPB Netherlands Bureau for Economic Policy Analysis 219, CPB Netherlands Bureau for Economic Policy Analysis.
  3. Daunfeldt , Sven-Olov & Rudholm , Niklas & Rämme, Ulf, 2009. "Congestion Charges in Stockholm: How Have They Affected Retail Revenues?," HUI Working Papers, HUI Research 23, HUI Research.
  4. Mohammad Arzaghi & J. Vernon Henderson, 2008. "Networking off Madison Avenue," Review of Economic Studies, Oxford University Press, vol. 75(4), pages 1011-1038.
  5. Hans R. A. Koster & Piet Rietveld & Jos N. van Ommerren, 2011. "Is the Sky the Limit? An Analysis of High-Rise Office Buildings," SERC Discussion Papers, Spatial Economics Research Centre, LSE 0086, Spatial Economics Research Centre, LSE.
  6. Maarten G.J. Jennen & Dirk Brounen, 2009. "The Effect of Clustering on Office Rents: Evidence from the Amsterdam Market," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 37(2), pages 185-208.
  7. Paul K. Asabere & Forrest E. Huffman, 1991. "Historic Districts and Land Values," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 6(1), pages 1-8.
  8. Gat, Daniel, 1995. "Optimal Development of a Building Site," The Journal of Real Estate Finance and Economics, Springer, Springer, vol. 11(1), pages 77-84, July.
  9. Mayo, Stephen & Sheppard, Stephen, 2001. "Housing Supply and the Effects of Stochastic Development Control," Journal of Housing Economics, Elsevier, Elsevier, vol. 10(2), pages 109-128, June.
  10. John M. Clapp & Carmelo Giaccotto, 1999. "Revisions in Repeat-Sales Price Indexes: Here Today, Gone Tomorrow?," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 27(1), pages 79-104.
  11. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, American Economic Association, vol. 64(3), pages 291-303, June.
  12. Barrett A. Slade, 2000. "Office Rent Determinants during Market Decline and Recovery," Journal of Real Estate Research, American Real Estate Society, American Real Estate Society, vol. 20(3), pages 357-380.
  13. Noonan, Douglas S. & Krupka, Douglas J., 2009. "Making – or Picking – Winners: Evidence of Internal and External Price Effects in Historic Preservation Policies," IZA Discussion Papers 4110, Institute for the Study of Labor (IZA).
  14. Gabriel M. Ahlfeldt & Wolfgang Maennig, 2010. "Substitutability and Complementarity of Urban Amenities: External Effects of Built Heritage in Berlin," Real Estate Economics, American Real Estate and Urban Economics Association, American Real Estate and Urban Economics Association, vol. 38(2), pages 285-323.
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