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Abstract for:

'Iconic Design' as Deadweight Loss: Rent Acquisition by Design in the Constrained London Office Market

Paul  Cheshire,  Gerard  Dericks,  January 2014
Paper No' SERCDP0154: | Full paper (pdf)
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Keywords: Land use regulation, regulatory costs, rent-seeking, office markets

JEL Classification: H3; J6; Q15; R52

Is hard copy/paper copy available? YES - Paper Copy Still In Print.
This Paper is published under the following series: SERC Discussion Papers
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Abstract:

Britain’s land use regulation (planning) system imposes very tight restrictions on the supply of office space so creating substantial rents. An unmeasured part of the costs associated with these restrictions likely comes from compliance costs, one form of which could be rent-seeking activity (Krueger, 1974) of a gentlemanly form: employing a ‘trophy architect’ to get ‘more rentable space’ on a given site (Cheshire & Hilber, 2008). This paper finds evidence strongly supportive of this hypothesis. It employs an hedonic approach on a sample of offices sold between 1998 and 2011, defining trophy architects (TAs) as those who had won a major lifetime achievement award. Much of London is covered by absolute height restrictions but outside these areas we show that i) for a given site a building designed by a TA is more valuable, but ii) this only arises because a TA squeezes more space on a given site – an extra 19 stories, increasing the site value by an estimated 130 percent. Planning restrictiveness also varies within London by jurisdiction and the price of space is higher where restrictiveness is tighter. While these effects of trophy architects could be windfall gains to developers, we suggest a more likely interpretation is that they represent the additional but difficult to measure returns demanded for the extra risk and delays imposed by using a TA to try to game the system - hence a form of compliance cost and a deadweight loss associated with England’s planning system.