'Iconic design' as deadweight loss: rent acquisition by design in the constrained London office market

Paul Cheshire and Gerard Dericks

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

Keywords: land use regulation; regulatory costs; rent-seeking; office markets (search for similar items in EconPapers)
JEL-codes: H3 J6 Q15 R52 (search for similar items in EconPapers)
Date: 2014-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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http://eprints.lse.ac.uk/58457/ Open access version. (application/pdf)

Related works:
Working Paper: 'Iconic Design' as Deadweight Loss: Rent Acquisition by Design in the Constrained London Office Market (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:58457

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