Loosening planning permission makes us richer

An interesting paper from an offshoot of the LSE. Looser planning permission makes a city richer. Of course, the paper looks a little odd at first sight but they do the work correctly. 

The Blitz, in which the Luftwaffe dropped more than 18,000 bombs on London over eight months during the Second World War, was utterly devastating for the capital.

More than two million homes were destroyed, 60,000 civilians killed and 87,000 wounded between September 1940 and May 1941.

Yet a new study from the Centre for Economic Performance (CEP), at the London School of Economics (LSE), suggests that the capital is £4.5 billion a year better off because of the raids.

Note what they do not do which is make the cod-Keynesian mistake of only measuring the economic activity of rebuilding while ignoring the losses from the bombing. Rather, they've:

This paper exploits locally exogenous variation in the location of bombs dropped during the Blitz to quantify the effect of density restrictions on agglomeration economies in London: an elite global city. Employing microgeographic data on office rents and employment, this analysis points to effects for London several multiples larger than the existing literature which primarily derives its results from secondary cities. In particular, doubling employment density raises rents by 25%. Consequently if the Blitz had not taken place, the resulting loss in agglomeration economies to present day London would cause total annual office rent revenues to fall by $4:5 billion { equivalent to 1:2% of London's annual GDP. These results illuminate the substantial impact of land-use regulations in one of the world's largest and most productive cities.

Roughly speaking, you understand, bomb sites had planning permission by definition. Not-bomb sites had to go through the post-war planning process. Those places where people could build without according to the planners' desires built bigger and quite possibly better. To such an extent that the London economy is now larger than if all had been according to plan.

The lesson from which is pretty obvious really - abolish the Town and Country Planning Act 1947 and successors and we'll all be richer. Which would be a nice result from just getting government to do less, wouldn't it?