A Longer Term View: Economics, Prosperity and the York Castle Gateway Project

Bernard Stafford argues that the test for Castle Gateway is – does it support well paying jobs. Amenity – include new public spaces – will help, chain-store retail and increasing tourism won’t.

As part of the My Castle Gateway process we have invited people to contribute in any way they’d like, from adding a post it on a walk or social media post through to recording a You Tube video. This also extends – for those that like writing – to contributing a blog to our website. In a written response to our Step 2 My Castle Gateway Challenges, Bernard Stafford argues that the key economic test of Castle Gateway should be whether it will increase economic prosperity via more well paid jobs. Bernard draws on research which shows that economic prosperity flourishes in places which are good and distinctive places to live due to amenity value such as public spaces, an exciting cultural offer and clean air. Moreover, Bernard suggests that chasing a Leeds-style chain store retail offer is likely to erode long term prosperity by creating only low paid jobs and by degrading York’s distinctiveness and that seeking an increase in tourism is likely to run into similar problems of low pay and degraded amenity as well as worsen York’s existing problem of housing affordability. Bernard notes that increasing York’s amenity value will have a knock on effect on housing, making it more expensive relative to earnings and increasing income inequality which is an issue which will need to be tackled by a city wide strategy. Overall, Bernard argues, that it is not helpful to think about the return on a Castle Gateway investment in a short, say 5 year, term – a timeframe within which the question of replacing revenue from the car park will dominate – rather the City of York Council needs to take the opportunity of Castle Gateway to think more long term about how to restructure York’s economy for long term prosperity through borrowing to invest to enhance amenity.

By Bernard Stafford
September 2017

I’ve carried out several statistical analyses of the development of the York economy over recent decades. At present I’m a Visiting Fellow in the School of Nursing and Midwifery in the University of Sheffield working on the economics of public health.
b.stafford@sheffield.ac.uk

1 Introduction
What sort of developments should the York Castle Gateway project encompass? There is no shortage of options emerging from the My Castle Gateway open brief: an urban park, a development of the River Foss basin, a linkage through to Tower Gardens and the New Walk or to a redeveloped Piccadilly, a re-balancing of the space given over to car, cycling and pedestrian movements, more residential and or retail development. But a key general question – there in the original City of York Council framing of the project – is how is any development to be financed?

The purpose of this note is not to provide specific answers to this complex set of questions but to suggest a framework within which the issues involved can be properly discussed and examined. This framework comprises:
• a sketch of the wider context of Castle Gateway project in terms of the strengths and weakness of the present day York economy
• a benefit criterion against which any proposed development should be judged – which is
will the economic prosperity of the City be thereby enhanced?
• a brief examination of the issue of the timescale to be adopted in planning the Gateway project, which is closely connected to the issue of finance
Section 2 gives a very brief sketch of the evolution of the York economy over the past four decades or so. Section 3 outlines the prosperity criterion and identifies an important conflict between prosperity and equity. Section 4 identifies some development options that would not pass the prosperity test. Section 5 examines the timescale issue. Finally there is a summary of conclusions.

2 The Present Day York Economy – Prosperity and Inequality
Over the 1980s manufacturing jobs in York disappeared at a much faster rate than in the national economy as automation, plant closures and relocations culled jobs in the rail and confectionery sectors, which were the core of the post-war manufacturing base of the City. York then faced the bleak prospect of an increasing reliance on low-paid, low-skilled jobs in tourism-related service sectors. But York’s economic prospects were rescued by two developments:

• From the mid 1990s onwards a rapid increase in employment in banking, insurance and financial services – all of which offered better wages and job prospects than tourism
• After 1998 an equally rapid expansion of jobs in a new service sector – a high technology, knowledge intensive cluster including bioscience and information technology – which was largely the a product of the impressive Science City venture sponsored by the City of York Council and the University of York

Since 1981 York has achieved a shift of employment out manufacturing into knowledge intensive services which was exceptionally large by national standards. By the mid 2010s these structural shifts had transformed York into a reasonably prosperous post industrial city. Thus by 2015

• one in eight York jobs were in the knowledge intensive business services sector
• the York employment rate of 76.7% was 3 percentage points above the average of 63 GB cities and ranked 13th from the top of the 63 cities league table
• the York claimant count rate of 0.71% was the 2nd lowest of the 63 cities
• the proportion of the York working age population with no qualifications of 4.6% was the lowest of the 63 cities [1]

This configuration of economic advantages is virtually absent in any other English city north of a line from the Bristol Channel to the Wash. In terms of economic structure York resembles a South of England city.

What seriously detracts from this rosy picture is a problem of low pay. The issue is not that some York jobs are low paid – there are such jobs in all cities – but that average earnings in York are about 10% less would be expected, in the sense of being that much less than those which prevail in other similarly advantaged GB cities [2].

This earnings deficit is reflected in the York housing affordability ratio which is unexpectedly high. This ratio – measured by the average price of a house divided by average annual earnings – is just under 10 which is about 10% greater than that prevailing in other similarly advantaged GB cities [3]. For reasons explained in the next section a successful Gateway development will further increase this ratio, making housing even more unaffordable for those on low incomes.

3 A Prosperity Criterion
Any Castle Gateway development should be judged on a criterion of economic prosperity – roughly speaking, would the development boost full time employment in well-paid jobs? Although there are other tests that could be applied it would be very hard to argue that this test should be entirely set aside. One way of identifying what sort of developments would satisfy this test is to consult the available empirical evidenceon the drivers of economic prosperity in successful post industrial cities [4].

The evidence points to a link between city prosperity and city amenity. Amenity is a composite commodity comprising things such as variety in restaurants and retail outlets (rather than simply the number of outlets); museums, art galleries and other cultural and live performance venues; important historical and architectural features of the built environment; clean air; ease of access to local green and blue spaces and to national and international destinations; good public services such as schools and hospitals; and safe and uncongested streets.

The underlying reason why city amenity matters in the post-industrial era is that in knowledge intensive sectors the locational preferences of workers effectively govern the locational choices of employers, whereas the reverse was the case during the earlier industrial era. In the early 19th century, when the transport of goods overland was hugely expensive relative to transport by water [5], industrial firms located near to sea estuaries, navigable waterways and canals (and latterly railways) in order to reduce the cost of transporting heavy raw material inputs and finished manufactured goods. Workers then moved from working on the land to where firms had located. This is the essential story of the growth of the great cities of the Industrial Revolution. But because production in modern knowledge intensive sectors is essentially “weightless”, firms in such sectors are not geographically tied to waterways or even railways. They are essentially footloose. But workers in knowledge intensive sectors are more discriminating – showing a strong preference to live in high amenity cities. And because employers in such sectors are attracted by pools of skilled workers they move to the locations where workers wish to live. This how amenity promotes economic prosperity in the post industrial era.

Although city amenity is a multi-faceted commodity it is reflected in a single measure: house prices. A well known and specific example of this phenomenon is the premium attached to the price of houses in the catchment areas of good schools. There is invariably a range of attractive features in the environment of a city where the ratio of houses prices to average earnings is high. From this view point a high housing affordability ratio is a sign of economic prosperity.

But on the reverse side of the high amenity coin is the problem of affordable housing. With house prices in York currently ten times average annual earnings many local residents not employed in high skill high wage sectors will be unable to afford to buy in the private sector. And because private rents rise in step with house prices the same problem arises in the private rental sector. Those affected will include Local Authority workers and NHS and Social Service employees who are providers of amenity which is reflected in high property prices and rents which they cannot afford to pay. And any development which enhances amenity in York will worsen the local housing affordability ratio by some degree. Although a successful Castle Gateway project will make the housing affordability problem more difficult there is no way of designing the project so as to lessen this problem, which needs to be tackled by a well-targeted city wide housing policy.

4 Retailing, Tourism and the Castle Gateway

More Chain Store Retailing – Problems of Lower Wages and Loss of Distinctive Amenity
City centre retailing in York is very highly segmented by type of premises – most chain-store retailers occupy modern buildings which are architecturally undistinguished and of no historical importance, whereas a significant proportion of important listed buildings in central York are occupied by small independent retailers. It’s thus essential for the upkeep of the historic core that the independent sub-sector of retailing can operate profitably in the City centre. But does the viability of independent city centre retailing depend on the viability city centre chain-store retailing? Could it be argued that centrally located chain stores provide the footfall that the small independents crucially rely on, and in particular that this will decline unless city centre chain store retailing is further developed to “fight back” against chain store developments such as those recently completed in central Leeds? Otherwise it’s asserted that the City Centre will “die on its feet”.

These arguments figured in the debate over the York Coppergate II development proposal of 2001 which was strongly endorsed by the City Council. However, they are unpersuasive for several reasons. Firstly the “fight back” strategy cannot succeed in the long run. The one thing that all other urban centres are continuing to do is to develop new chain store shopping zones. Thus to respond to more new chain store outlets in Leeds and elsewhere by building more of the same outlets in York will make York progressively more like everywhere else, which could not attract mobile workers and would positively discourage leisure visitors who come because York is attractively different. A retail “fight back” strategy is essentially no-win tussle with retail parks elsewhere.

Second, jobs in retailing score poorly in terms of wages. Official figures show that nationally the average wage in retailing is more than 20% below the average across all industrial and service sectors [6]. Thus more jobs in retailing means more jobs on the lower rungs of the skill and wages ladder and a widening degree of income inequality. Of course this case against more retailing would collapse if the only alternative to more retailing jobs would be more unemployment. But there are very superior alternatives to retailing and unemployment, which York’s recent economic history clearly identifies.

More Tourism – Problems of Low Wages, Congestion and Affordable Housing
The Castle Gateway project should not be envisaged and designed as a venture to promote tourism. The central objective should be to provide greater amenity to actual and prospective residents of the City – especially those seeking work in knowledge intensive sectors. Of course a likely by product of such a project will be to make York even more attractive to some visitors and tourists. Although more jobs in tourism are likely to result the core aim should be to promote the growth of full time well paid jobs in knowledge intensive sectors rather than part time jobs in tourism, which scores even worse than retailing in terms of wages – nationally average wages in accommodation and food service sectors are about 40% below the average across all industrial and service sectors [7].

Although York has a thriving and well-established tourism sector there are at least two reasons apart from the low wage issue to be concerned about any large scale future expansion. The first is overcrowding and congestion in the small historic core of the City. Sooner or later pedestrian use of the core network of streets will approach a capacity limit at certain times of the year and at certain times of the day. As this limit is approached the amenity of York’s public realm will become seriously degraded for both residents and visitors. A different problem associated with a growth in tourism would be a continued increase in short term private rental lets to visitors. This would worsen York’s problem of housing affordability by reducing the supply of longer term rental lets available to residents, which would have the knock on effect of pushing up rent levels in the residual stock of such lets. Recent media coverage has highlighted the extent of this problem in Amsterdam, Barcelona and elsewhere, and there is no reason to suppose that problems of this sort could not emerge in York.

5 The Assessment Timescale – Financial Viability should be Judged over the Long Term
The basic reason why a long timescale should be adopted for the assessment of specific Gateway developments is that the benefits of virtually all canvassed proposals will be spread over many decades. In the short run – say up to a 5 year horizon – any assessment will be dominated by two cost items – that of the initial one-off infrastructure investment plus the annual loss of about £1.2 million foregone car parking charges – against which only 5 years worth of benefit can be set. Thus the longer is the assessment timescale the more favourable will be the balance of benefits against cost, especially as the prospective annual loss of car parking revenue is likely to diminish as city centre car usage comes under greater control.

So a proper assessment would balance a large up-front cost (plus a declining annual revenue shortfall) against a flow of annual benefits spread out over many decades. This time pattern of costs and returns is of course is one which faces any firm contemplating a new investment and any individual thinking of buying a house, and which justifies the use of borrowing as a means of finance. There seems no reason of principle why the City Local Authority should not cover the cost of a Gateway project by resort to the extensive although quite heavily regulated borrowing powers which are available to all English Local Authorities. And because interest rates on public sector borrowing are now at a record all-time low there has never been a better time for the City to borrow to invest.

6 Conclusions
York needs to change from low wages economy: Present day York is a prospering post industrial city with a problem of low wages and income inequality
York needs to create well paid jobs: any development proposal for the York Castle Gateway project should be tested against an economic prosperity criterion – which is would the proposal boost full time well paid jobs?
Well paid jobs are linked to amenity, the things that make cities desirable places to live: evidence on what boosts such jobs in post industrial cities indicates that the Gateway
project should aim to improve civic amenity – which is a multi-faceted commodity
Chasing city centre retailing and more tourism would not pass the prosperity test
Places with good amenity have higher housing costs: because improved amenity gets capitalized in house prices a successful Gateway project would worsen income inequality in York by pushing up the ratio of house prices to average earnings. This issue can only be tackled by a well targeted city wide housing policy
A long time scale should be adopted for the assessment of the Gateway project and the advantage of very low interest rates should be exploited by the use of borrowing as a means of finance

[1] The data cited here can be found at
http://www.centreforcities.org/data-tool/#graph=map&city=show-all
[2] This finding derives from a statistical analysis of data in www.centreforcities.org (op.cit.)
[3] This finding also derives from a statistical analysis of data in www.centreforcities.org (op.cit.)
[4] This evidence is summarised in Edward Glaeser The Triumph of the City MacMillan 2011 and
R Martin, P Sunley, P Tyler and B Gardiner Divergent Cities in Post Industrial Britain Cambridge Journal of Regions, Economy and Society 2016 9 269-299
[5] In 1800 the cost of transporting a ton of coal from Newcastle to London overland by horse and cart was 28 times greater than the cost of taking it by sea
(see http://www.socsci.uci.edu/~dbogart/transport_revolution_surveyjan2013.pdf)
[6] See https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/adhocs/006332newearningssurveynesandannualsurveyofhoursandearningsashepublicandprivategrossweeklytimeseries
[7] See www.ons.gov.uk (op. cit.)

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