we wanted human capital, we got human beings

toward a theory of NIMBYs?

The problem with slum clearance and gentrification is that you can only do it once.

What do I mean by that? Basically, I am once more thinking about agglomeration and its discontents. Specifically, a subsidiary theatre of that endless discourse which relates to density, housing and knowledge clusters.

Let us consider a real world example – the Crick Institute, near King’s Cross in London. This is in a sense pretty conveniently located, in that the excellent train connections make it possible for the biomedical researchers who work there to get into work from the suburbs and exurbs they can afford to live in. But in another sense, it’s meant to be a knowledge cluster, and it’s in a place where almost none of the staff can afford to live within five miles.

I think this is a pretty good sign that the UK’s premier medical research facility shouldn’t have been in London. The decision wasn’t crazy – the Crick is partly a joint venture with UCL, KCL and Imperial, plus King’s Cross and Somers Town were nothing like as gentrified when they started making the plans. But it’s kind of predictable that this would happen, and it illustrates a general point about the limits to agglomeration.

Basically, you start off building a knowledge cluster, and to begin with you’re in a wonderful world of increasing returns. People start moving into a location, it starts developing and creating synergies. You get more human capital, and because it’s a cluster, you get social capital -there is a real economic advantage to some people of being in that location.

And there are two consequences of this. First, the value of that social and human capital starts to show up in housing costs. David Ricardo’s Law of Rent is not easily defeated – if it is valuable to be in a particular location, then a large part of that value will be appropriated by those who control the monopoly in legal occupation of that location (ie, the property owners). Rent, either in cash terms or capitalised into property prices, will reflect the greater productivity of an industrial cluster location. In exactly the same way and for exactly the same reason that more fertile land rents for more. (Ricardo’s original formulation was meant to explain a seeming paradox that the living standards of tenant farmers didn’t seem to be correlated with agricultural productivity).

But also – the population changes, to be much more made up of people with significant human and social capital. Which is where I cash in the cheque that I wrote in the first sentence; once a place is gentrified, it tends to be full of the kind of people who are a lot more difficult to push around than the original residents.

Which turns into a problem for the authorities if they have a development strategy that’s based on continuing to expand the knowledge cluster. At some point, you run out of road; biomedical researchers can’t live in the NW1 postcode because it’s already full of bankers and lawyers. So you start thinking about densification, building on brownfield sites, etc etc.

This is the point at which you start to feel beset by NIMBYs. Because when you filled the place up originally with high-productivity, high-human-capital residents, you also filled it up with people. Those people want a certain level of amenity; from their perspective they are already living next to a railway yard and paying extortionate rent to do so – they’re not going to quietly accept that they also need to live next to a building site and be overlooked by a tower block.

And they have a lot of ways of interfering with development plans. The issue here is not really one that can be solved by planning law, because it’s fundamentally a problem of political economy. Whatever powers you give to accelerate and streamline the objection process, if there is any local democracy at all, it is just simply very difficult to do something which is opposed by a large group of energetic and well-connected middle class people. The only currently available strategy for dealing with this political problem – calling them selfish middle class bastards on podcasts – doesn’t really work.

Not only doesn’t it work, it quite possibly can’t work, because there is also a time-inconsistency problem. In order to build up the successful cluster in the first place, you need to provide a stable, rule-of-law environment in which people can be confident that they’re going to be able to enjoy the benefits of the investments they’re making and risks they’re taking. It’s very debatable indeed whether, having established this, you can then change the rules of the game and bulldoze the enemies of progress. You might end up losing the original high-value cluster and not really attracting enough further human capital to replace it. The Slate Heap problem is also not easily defeated; past choices and commitments often constraint present policy options, even if it would be really convenient for them not to do so.

So what’s to be done? In my view, the thing you have to give up on is the assumption that agglomeration and clustering benefits can be sustained monotonically and without running into diminishing returns. If the growth of a cluster is being seriously constrained by NIMBYism, that might be the market economy’s way of telling us that new activity needs to happen somewhere else.