How can we judge infrastructure spending?

A new light rail line under construction in Sydney. Image: Getty.

In moments of fierce political competition, there’s one topic where most candidates find common ground – and that’s infrastructure spending. Pledges to spend more on transport, energy, water, waste and telecommunications systems are seen as vote winners in democracies across the globe.

In the United States, Donald Trump promised to deliver a trillion-dollar infrastructure plan. And, in the UK general election campaign, all major parties made substantial commitments for infrastructure in their manifestos. Even the far-reaching austerity policies favoured by Western governments across the globe have failed to put a dent in infrastructure spending.

But while parties across the political spectrum readily commit to big-budget projects, it can be difficult for voters to know what outcomes to expect from the billions pledged toward infrastructure. Here are some tips to help you make sense of the sweeping claims and enormous pledges that politicians are wont to make regarding infrastructure, whenever a poll approaches.

Sensible spending requires a plan

Governments as far apart as the UK, Australia and New Zealand promote themselves based on their big infrastructure budgets. But not all investments are the same – and a big budget doesn’t guarantee better value for the public.

Infrastructure spending can be broadly divided into capital expenditure (building new things), operations (running what we already have) and maintenance (repairing what we already have). Getting value from infrastructure requires good decisions across all three categories.

Politicians love building new infrastructure: ribbon-cutting, high-vis vests and hard hats are a PR opportunity which few can resist. Photo-ops aside though, politicians may also favour big projects over smaller ones because it’s easier to overcome opposition and see them through to fruition. Yet investments in big-ticket infrastructure projects should be made with clear goals in mind. Unless an investment addresses a clear public need, it can easily result in a white elephant.

Governing in style: former UK prime minister David Cameron touring London’s Crossrail. Image: The Prime Minister's Office/Flickr/creative commons.

For example, the rationale for the UK’s HS2 – a high-speed rail link between London and northern England – has changed several times throughout its planning phase, suggesting that it may be a project searching for a problem to solve. What’s more, the project’s ability to regenerate the country’s north (one of it’s key selling points) may depend on complementary investments across the region, in addition to the rail link. Critics of the project claim it could be a costly mistake.

Spending on maintenance, or changing how you use existing infrastructure – while less flashy – can be just as effective. For example, re-franchising and extending the East London Line into the London overground network dramatically changed transport provision in the area. The low-frequency commuter service was transformed into a high-quality local service by linking together two existing lines with higher frequencies, improving trains and upgrading stations. Huge value was created by changing how the line was operated, rather than building a completely new one.

Similarly, if maintenance spending is cut when budgets are tight, systems can degrade faster and fail earlier. The 2016 water crisis in Flint, Michigan is a prominent example of this. Cost-cutting led the city to switch the water supply to the Flint River in 2014. The river water was more corrosive – and a combination of deteriorating infrastructure networks and poor monitoring of water quality led to dangerously high concentrations of lead in the city’s water supply.

Infrastructure investment ≠ growth

Since the 1980s, governments worldwide have relied on the faulty assumption that infrastructure investment stimulates economic growth. The problem with this is that you can’t easily detect cause and effect – so it’s difficult to tell whether large-scale infrastructure investment actually causes growth. Statistical analysis of empirical studies between 1990 and 2012 found that, on average, the correlation between investment and growth was positive but small – and highly variable. The wisdom of making public investment decisions based on such evidence is questionable.

Instead, new research suggests that the link between infrastructure investment and growth actually hinges on the quality of government. Government quality is determined by several measures, including transparency, appropriate use of evidence and expertise and robust processes within institutions responsible for infrastructure investment. Data from EU regions showed that improvements in local roads was only connected to growth where government quality was higher. This strongly supports the case that it’s not how much you spend, it’s how you spend it.

Better pledges offer real results

To truly communicate the value of infrastructure spending, politicians should explain (and you should ask) how it will deliver real-world outcomes – say, by improving your daily commute to work. Or – even better – how it will improve the commute of the person who makes your coffee or cleans your office. After all, travelling to work tends to be more expensive, and take longer for low-income workers.

A bit of a drag. Image: Mister Wind-up Bird/Flickr/creative commons.

These days, one of the most important outcomes to consider is the impact that infrastructure has on the environment. To address climate change, sustainability should be a priority in any infrastructure policy. It’s important to know if energy is coming from low-carbon sources, and if new investments give people a chance to switch to public transport, walking or cycling, or promote the use of electric or low-emission vehicles.


Cities are a special case

In cities, infrastructure investment is affected by one issue in particular: if the property market is driven by speculative investment without proper provisions for affordable housing, infrastructure improvements, particularly transport, are likely to fuel that speculation even further. Those who benefit from better infrastructure will be real estate developers and any buyers who haven’t already been priced out of the market. If housing policy does not aim for equality, it is hard to guarantee that the benefits of urban infrastructure investment will be fairly distributed.

Infrastructure is often talked about in terms of the great feats of engineering such as Bazalgette’s sewer system and underground railway systems. While advances in engineering are impressive, the political importance of infrastructure projects lies in what purpose they serve – whether it is for the benefit of public health, getting to work or school, or reliable access to energy and telecommunications.

The ConversationSo, the next time politicians promise to spend big on infrastructure, it’s important to ask how it will improve quality of life, support economic development and maintain and operate the vital infrastructure we already have – as well as funding shiny new projects.

Jenny McArthur is a postdoctoral research associate in the City Leadership Laboratory: Department of Science, Technology, Engineering and Public Policy, UCL.

This article was originally published on The Conversation. Read the original article.

 
 
 
 

Is Britain’s housing crisis a myth?

Council housing in Lambeth, south London. Image: Getty.

I’ve been banging on about the need for Britain to build more houses for so long that I can no longer remember how or when it started. But at some point over the last few years, the need to build more homes has become My Thing. People ask me to speak at housing events, or @ me into arguments they’re having on Twitter on a Sunday morning in the hope I’ll help them out. You can even buy a me-inspired “Build More Bloody Houses” t-shirt.

It’s thus with trepidation about the damage I’m about to do to my #personal #brand that I ask:

Does Britain actually have enough houses? Is it possible I’ve been wrong all this time?

This question has been niggling away at me for some time. As far back as 2015, certain right-wing economists were publishing blogs claiming that the housing crisis was actually a myth. Generally the people who wrote those have taken similarly reality-resistant positions on all sorts of other things, so I wasn’t too worried.

But then, similar arguments started to appear from more credible sources. And today, the Financial Times published an excellent essay on the subject under the headline: “Hammond’s housebuilding budget fix will not repair market”.

All these articles draw on the data to make similar arguments: that the number of new homes built has consistently been larger than the number of new households; that focusing on new home numbers alone is misleading, and we should look at net supply; and that the real villain of the piece is the financialisation of housing, in which the old and rich have poured capital into housing for investment reasons, thus bidding up prices.

In other words, the data seems to suggest we don’t need to build vast numbers of houses at all. Have I been living a lie?

Well, the people who’ve been making this argument are by and large very clever economists trawling through the data, whereas I, by contrast, am a jumped-up internet troll with a blog. And I’m not dismissing the argument that the housing crisis is not entirely about supply of homes, but also about supply of money: it feels pretty clear to me that financialisation is a big factor in getting us into this mess.

Nonetheless, for three reasons, I stand by my belief that there is housing crisis, that it is in large part one of supply, and consequently that building more houses is still a big part of the solution.

Firstly I’m not sold on some of the data – or rather, on the interpretation of it. “There is no housing crisis!” takes tend to go big on household formation figures, and the fact they’ve consistently run behind dwelling numbers. Well, they would, wouldn’t they? By definition you can’t form a household if you don’t have a house.

So “a household” is not a useful measure. It doesn’t tell you if everyone can afford their own space, or whether they are being forced to bunk up with friends or family. In the latter situation, there is still a housing crisis, whatever the household formation figures say. And there is plenty of anecdotal evidence to suggest that’s the one we’re living in.

In the same way I’m not quite convinced that average rents is a useful number. Sure, it’s reassuring – and surprising – to know they have grown slower than general prices (although not in London). But all that figure tells you is the price being paid: it doesn’t tell you what is being purchased for that payment. A world in which renters each have their own property may have higher rents than one in which everyone gets one room in an over-crowded shared flat. It’s still the latter which better fits the label “housing crisis”.

Secondly, I’m entirely prepared to believe we’ve been building enough homes in this country to meet housing demand in the aggregate: there are parts of the country where housing is still strikingly affordable.

But that’s no use, because we don’t live in an aggregate UK: we live and work in specific places. Housing demand from one city can be met by building in another, because commuting is a thing – but that’s not always great for quality of life, and more to the point there are limits on how far we can realistically take it. It’s little comfort that Barnsley is building more than enough homes, when the shortage is most acute in Oxford.

So: perhaps there is no national housing crisis. That doesn’t mean there is not a housing crisis, in the sense that large numbers of people cannot access affordable housing in a place convenient for their place of work. National targets are not always helpful.


Thirdly, at risk of going all “anecdote trumps data”, the argument that there is no housing crisis – that, even if young people are priced out of buying by low interest rates, we have enough homes, and rents are reasonable – just doesn’t seem to fit with the lived experience reported by basically every millennial I’ve ever met. Witness the gentrification of previously unfashionable areas, or the gradual takeover of council estates by private renters in their 20s. 

A growing share of the population aren’t just whining about being priced out of ownership: they actively feel that housing costs are crushing them. Perhaps that’s because rents have risen relative to wages; perhaps it’s because there’s something that the data isn’t capturing. But either way, that, to me, sounds like a housing crisis.

To come back to our original question – will building more houses make this better?

Well, it depends where. National targets met by building vast numbers of homes in cities that don’t need them probably won’t make a dent in the places where the crisis is felt. But I still struggle to see how building more homes in, say, Oxford wouldn’t improve the lot of those at the sharp end there: either bringing rents down, or meaning you get more for your money.

There is a housing crisis. It is not a myth. Building more houses may not be sufficient to solve it – but that doesn’t meant it isn’t necessary.

Jonn Elledge is the editor of CityMetric. He is on Twitter as @jonnelledge and also has a Facebook page now for some reason. 

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