Making cities productive and liveable: - PowerPoint Presentation

Slide1

Making cities productive and liveable:economic principles for urban development.

Tony Venables

Dept of Economics

University of OxfordSlide2

Introduction

Want cities to offer jobs and incomes

and to be ‘liveable’ Many cities around the world do this very successfully Balance two fundamental economic forces, + and -: High productivity: Economic dynamism from scale and density Job creation High cost: land scarcity/ congestion/ commuting Affordability for households Cost of doing business Successful balance requires: Efficient use of land Public investment: infrastructure, services Environment conducive to private investment: Residential Commercial and industrial Combination of private sector (interacting through markets) and public policy:

3 crucial investment processesSlide3

Private incomes.

Tax revenues

.

IVIIIIIIA Tale of...... Two citiesVirtuous circle: Vicious circle: Low income, revenueSlide4

Four links: I: Economic activity and productivity

Cities are good for productivity & growing new activities:

High density & proximity  intense economic activity  productivity Firms: Economies of scale More intense competition spurs efficiency Access to suppliers of intermediate goods & services Suppliers have good access to customers Firms and workers: ‘thick’ labour market Firms able to find specialist skills Workers have incentive to acquire specialist skills Knowledge spillovers and networks Evidence: Large productivity effects across developed country cities of different sizes. Cities as incubators for new activitiesSlide5

Four links: I: Economic activity and productivity (continued)

What economic activities get the largest urban productivity advantage?

STRONG:

Modern manufacturing: e.g. Automobile clusters Garments: - Dhaka Services, innovation, creative & media sectors Finance: London, New York R&D: silicon valley HollywoodWEAK: Government services, trading Production for local marketsMESSAGE: largest urban productivity gains from ‘global/tradable sectors’‘Global sectors’ – tradable goods & internationally competitiveScale is restricted by the size of the market.Slide6

Four links: II: Urban form for liveability and low cost

Cities derive productivity from density

Fundamental trade-off? high density

 small living space Mitigated by: Efficient use of land High quality building: height Good infrastructure: transport (proximity by travel time not distance) Two benefits Cities are ‘liveable’: Decent quality housing/ utility/ service provision Cities are (relatively) low cost: Workers can get to jobs Firms have supporting infrastructure Wages not elevated just to compensate for poor living conditionsSlide7

Four links: II: Urban form for liveability and low cost

How to achieve?

Efficient

allocation of land:Used by those who value it mostUsers are able to develop – invest in housing/ buildings Requires:Functioning markets: land.... also capital, building servicesAppropriate regulation Regulation needed because of externalities/ imperfect information But standards often been set too high  informalityInfrastructure investment that leads not lagsHigh cost of retro-fittingInfrastructure to guide the location of private investmentsMESSAGE: Efficient use of land/ housing supply/ infrastructure provision translates into both liveability and lower costs Slide8

Four links: III: Costs & business environment to attract investment

Internationally footloose activity will not be attracted to high-cost cities

Evidence on ‘urbanisation without industrialisation’

Informality ‘Resource curse’ at the urban level?Attracting new investors: a chicken and egg problem High productivity from being in a cluster…..but not for the first moverOpportunities arising from rising wages in Asia? MESSAGE: Functional cities are an important part of wider a growth and diversification strategy.Slide9

Four links: IV: Income to finance investment needs

Investment in structures – residential/ business/ infrastructure – expensive: How to finance?

Principally private sector income (& expected future income… capital markets)

Public finance::Land value and land taxation: Some of the economic benefit generated by cities accrues is land value appreciation. (NB – land, as well as buildings) Who captures this appreciation? Private land-owners or society? Land value appreciation is sufficient to finance all the infrastructure needs of an efficient city. How to capture? Social ownership of land Land taxation; Flow of revenue  need to borrow for leading investments.MESSAGE: land tax can provide a secure basis for urban financeSlide10

Concluding

Cities are potentially drivers of growth and job creation

But must work well enough to attract investment & create jobs Need to see the city as a whole: Decent (and dense) housing is valuable for liveability and for attracting investment. City can be self-financing: land value taxation Vicious circle: Poor land-use/ infrastructure/ urban form/ low investment/ low revenue. Virtuous circle: Efficient land-use/ infrastructure/ urban form/ high investment/ job creation/ revenue.