HS2 is a solution in search of a problem

An anti-HS2 cow. Image: Getty.

Escalating costs on a large infrastructure project in the UK is hardly news. But reports that the High Speed 2 rail line (HS2) might now cost up to £106bn, almost double last year’s estimate, is extreme even for this country.

Perhaps we should not be surprised. Industry experts have warned for years that HS2’s costs would overrun, with some forecasting that it could cost between 20 per cent and 60 per cent more than the £56bn sum the last government signed off.

Work on HS2 has hardly started and yet, throughout its 10-year political life, cost projections have more than tripled, from £33.3bn to today’s sum, if the Financial Times’ reports of the government’s review of the scheme are to be believed.

Without seeing the full review, it is hard to make firm assumptions. But when we analysed the economic and strategic case for HS2 at the New Economics Foundation (NEF) last year, we calculated that if the cost of the scheme went up by 60 per cent (which took the total to around £90bn) with no increase in benefits, it would no longer pass the government’s value-for-money tests.

Infrastructure schemes that are not good value for money but are viewed as strategically important, can still be given the political nod from the Treasury – but then the problems they are solving have to be important ones, and the solutions rock solid. In HS2’s case they are not.

Proponents of HS2, including the Department for Transport, will say that it frees up capacity on the existing West Coast Mainline that can be used to relieve overcrowding on trains and line congestion. It will, but it’s not at all clear to what extent it will do this or to what extent this is needed.

One reason for this is that, because of our privatised railways, the data you’d need to draw firm conclusions – about numbers of passengers on specific trains and where and when they board and alight – is owned by train operating companies and not released publicly. To get round this problem during our research, we conducted an informal census of passengers getting off at evening peak time on London to Birmingham trains in Milton Keynes. We found that around two-thirds of passengers leave these trains at Milton Keynes. 

Even if every single passenger that doesn’t alight at Milton Keynes on peak time trains out of Euston is going to Birmingham or beyond, does this relatively modest thinning out of peak time west coast trains really merit spending more than £100bn and building thousands of miles of high-speed line? Probably not, especially given that trains are only overcrowded at peak times, and that similar overcrowding happens on other lines into London and around other big cities, most of which HS2 will do nothing whatsoever to address.


HS2 has also been billed as a project that will help ‘level up’ areas of the UK outside the south-east, bringing much needed jobs and growth to the north and midlands. But London’s inexorable pull and economic might means that starting the line in the capital skews the possibility of this happening. In fact, according to HS2 Ltd’s own economic appraisal – buried in an appendix on page 75 – 40 per cent of the benefits of HS2 will flow to London, compared to 18 per cent to the north-west, 12 per cent in the West Midlands, and 10 per cent to Yorkshire and Humber.

Investment in the UK’s railways – and in its bus network – is very sorely needed. For instance, none of the three critical east-west lines across the Pennines is currently electrified, which is not only essential to make transport low carbon, but also to speed up services and make them more efficient.

There are massive problems almost everywhere on the rail network and big, public-led investment is certainly going to be needed. But taxpayers should demand value for money, which HS2 does not deliver. The best solution would be to share out the investment capital of HS2 between the regions of England, and Wales and Scotland. Governments local and national should spend the money on solving the transport problems that affect the most people, which is generally the daily commute.

HS2 is a product of decision-making that begins and ends in London. It’s no surprise that with this approach we’ve ended up with a railway project that looks like a solution in search of a problem.

Andrew Pendleton is director of policy and advocacy at the New Economics Foundation.

 
 
 
 

A new wave of remote workers could bring lasting change to pricey rental markets

There’s a wide world of speculation about the long-lasting changes to real estate caused by the coronavirus. (Valery Hache/AFP via Getty Images)

When the coronavirus spread around the world this spring, government-issued stay-at-home orders essentially forced a global social experiment on remote work.

Perhaps not surprisingly, people who are able to work from home generally like doing so. A recent survey from iOmetrics and Global Workplace Analytics on the work-from-home experience found that 68% of the 2,865 responses said they were “very successful working from home”, 76% want to continue working from home at least one day a week, and 16% don’t want to return to the office at all.

It’s not just employees who’ve gained this appreciation for remote work – several companies are acknowledging benefits from it as well. On 11 June, the workplace chat company Slack joined the growing number of companies that will allow employees to work from home even after the pandemic. “Most employees will have the option to work remotely on a permanent basis if they choose,” Slack said in a public statement, “and we will begin to increasingly hire employees who are permanently remote.”

This type of declaration has been echoing through workspaces since Twitter made its announcement on 12 May, particularly in the tech sector. Since then, companies including Coinbase, Square, Shopify, and Upwork have taken the same steps.


Remote work is much more accessible to white and higher-wage workers in tech, finance, and business services sectors, according to the Economic Policy Institute, and the concentration of these jobs in some major cities has contributed to ballooning housing costs in those markets. Much of the workforce that can work remotely is also more able to afford moving than those on lower incomes working in the hospitality or retail sectors. If they choose not to report back to HQ in San Francisco or New York City, for example, that could potentially have an effect on the white-hot rental and real estate markets in those and other cities.

Data from Zumper, an online apartment rental platform, suggests that some of the priciest rental markets in the US have already started to soften. In June, rent prices for San Francisco’s one- and two-bedroom apartments dropped more than 9% compared to one year before, according to the company’s monthly rent report. The figures were similar in nearby Silicon Valley hotspots of San Jose, Mountain View, Palo Alto.

Six of the 10 highest-rent cities in the US posted year-over-year declines, including New York City, Los Angeles, and Seattle. At the same time, rents increased in some cheaper cities that aren’t far from expensive ones: “In our top markets, while Boston and San Francisco rents were on the decline, Providence and Sacramento prices were both up around 5% last month,” Zumper reports.

In San Francisco, some property owners have begun offering a month or more of free rent to attract new tenants, KQED reports, and an April survey from the San Francisco Apartment Association showed 16% of rental housing providers had residents break a lease or unexpectedly give a 30-day notice to vacate.

It’s still too early to say how much of this movement can be attributed to remote work, layoffs or pay cuts, but some who see this time as an opportunity to move are taking it.

Jay Streets, who owns a two-unit house in San Francisco, says he recently had tenants give notice and move to Kentucky this spring.

“He worked for Google, she worked for another tech company,” Streets says. “When Covid happened, they were on vacation in Palm Springs and they didn’t come back.”

The couple kept the lease on their $4,500 two-bedroom apartment until Google announced its employees would be working from home for the rest of the year, at which point they officially moved out. “They couldn’t justify paying rent on an apartment they didn’t need,” Streets says.

When he re-listed the apartment in May for the same price, the requests poured in. “Overwhelmingly, everyone that came to look at it were all in the situation where they were now working from home,” he says. “They were all in one-bedrooms and they all wanted an extra bedroom because they were all working from home.”

In early June, Yessika Patapoff and her husband moved from San Francisco’s Lower Haight neighbourhood to Tiburon, a charming town north of the city. Patapoff is an attorney who’s been unemployed since before Covid-19 hit, and her husband is working from home. She says her husband’s employer has been flexible about working from home, but it is not currently a permanent situation. While they’re paying a similar price for housing, they now have more space, and no plans to move back.

“My husband and I were already growing tired of the city before Covid,” Patapoff says.

Similar stories emerged in the UK, where real estate markets almost completely stopped for 50 days during lockdown, causing a rush of demand when it reopened. “Enquiry activity has been extraordinary,” Damian Gray, head of Knight Frank’s Oxford office told World Property Journal. “I've never been contacted by so many people that want to live outside London."

Several estate agencies in London have reported a rush for properties since the market opened back up, particularly for more spacious properties with outdoor space. However, Mansion Global noted this is likely due to pent up demand from 50 days of almost complete real estate shutdown, so it’s hard to tell whether that trend will continue.

There’s a wide world of speculation about the long-lasting changes to real estate caused by the coronavirus, but many industry experts say there will indeed be change.

In May, The New York Times reported that three of New York City’s largest commercial tenants — Barclays, JP Morgan Chase and Morgan Stanley — have hinted that many of their employees likely won’t be returning to the office at the level they were pre-Covid.

Until workers are able to safely return to offices, it’s impossible to tell exactly how much office space will stay vacant post-pandemic. On one hand, businesses could require more space to account for physical distancing; on the other hand, they could embrace remote working permanently, or find some middle ground that brings fewer people into the office on a daily basis.

“It’s tough to say anything to the office market because most people are not back working in their office yet,” says Robert Knakal, chairman of JLL Capital Markets. “There will be changes in the office market and there will likely be changes in the residential market as well in terms of how buildings are maintained, constructed, [and] designed.”

Those who do return to the office may find a reversal of recent design trends that favoured open, airy layouts with desks clustered tightly together. “The space per employee likely to go up would counterbalance the folks who are no longer coming into the office,” Knakal says.

There has been some discussion of using newly vacant office space for residential needs, and while that’s appealing to housing advocates in cities that sorely need more housing, Bill Rudin, CEO of Rudin Management Company, recently told Spectrum News that the conversion process may be too difficult to be practical.

"I don’t know the amount of buildings out there that could be adapted," he said. "It’s very complicated and expensive.

While there’s been tumult in San Francisco’s rental scene, housing developers appear to still be moving forward with their plans, says Dan Sider, director of executive programs at the SF Planning Department.

“Despite the doom and gloom that we all read about daily, our office continues to see interest from the development community – particularly larger, more established developers – in both moving ahead with existing applications and in submitting new applications for large projects,” he says.

How demand for those projects might change and what it might do to improve affordable housing is still unknown, though “demand will recover,” Sider predicts.

Johanna Flashman is a freelance writer based in Oakland, California.