‘Trophy Architects’ and Design as Rent‐seeking: Quantifying Deadweight Losses in a Tightly Regulated Office Market

Abstract

Britain tightly restricts the supply of office space, creating substantial economic rents, but its development restrictions are politically administered and therefore gameable, inducing rent‐seeking activity. We find that ‘trophy architects’ (TAs)—prior winners of a lifetime achievement award—obtain more space on a given site apparently by signalling architectural merit. Analysis of 2039 office buildings shows that TAs build 14 stories taller, thereby increasing a representative site value by 152% and capturing potential economic rents of £148m. However, we argue that this apparent premium is merely compensation for the extra costs, risks and delays of using a TA to game the planning system; it is therefore an indirect measure of the deadweight costs of this form of rent‐seeking.

Offices scarce but housing scarcer: Estimating the premium for London office conversions

“…If a project is rejected this can be appealed in a quasi-judicial process first to the Planning Inspectorate and ultimately to the government minister responsible for the planning system. Thus, all decisions about development are uncertain because they are political decisions, so subject to lobbying and the personal tastes or prejudices of local representatives: moreover, only a minority of LPAs in fact have an up to date local plan and such plans are not binding (see Cheshire & Carozzi, 2019). So not only are all decisions uncertain but they are also gameable.…”

“…It is included here, interacted with entitlement, to see whether the premium for the PDR was greater for office buildings in these more restrictive boroughs. A number of studies (see Cheshire & Dericks, 2020) have found office prices are higher, the higher is the local density of office-based employment. So that, too, is included using data from Nomis (2011).…”

“…We find that the new ability to convert offices to housing without need for planning permission increased the price of such offices by some 50 percent. Previous research (Cheshire and Hilber, 2008;Cheshire & Dericks, 2020) has already shown that the price of office space in London has been substantially increased by planning imposed supply restrictions. Cheshire and Hilber (2008) estimated that the mean Regulatory Tax (measured as the percentage mark-up of price over construction cost per unit area) for the period 1999 to 2005 was between 330 and 810 percent in London office zones to which the PDR was not applied.…”

“…The impact in Britain appears to be even more substantial, however. Moreover the evidence showing that supply restrictions imposed by the planning system also impact the price of office space, the form of offices (Cheshire and Dericks, 2020) or the supermarket sector (Cheshire et al, 2015) appears to be confined to Britain. The findings reported here add to this evidence showing that the economic effects of restrictive land use regulation in Britain are extreme and spread to more sectors of real estate than is the case elsewhere in the world.…”

“…Why is this of interest? Previous research (Cheshire & Dericks, 2020; Cheshire & Hilber, 2008) has already shown that British land‐use planning does not just substantially increase the price of housing and reduce net welfare but the supply restrictions it imposes on office development also substantially raise the price of offices. Cheshire & Hilber (2008) estimated that the mean Regulatory Tax (measured as the percentage mark‐up of price over construction cost per unit area) for the period 1999 to 2005 was between 330 and 810% in the prime London office zones (to which the PDR was not applied).…”