George Osborne is on a quest to make local councils more business-minded.
At the Conservative party conference, the chancellor told his audience local authorities should keep more of the money they make from business rates. He’d also like to give them the power to lower the levy in a bid to attract more industry.
Though Osborne might have got his party members to put their hands together, people outside the conference building have been sceptical about his plans.
The proposals could potentially create a dog-eat-dog office market in which local governments are all trying to woo the same companies. As a result, we could see new industrial parks sprouting everywhere, weighing on property values.
Something similar recently happened in the Dutch commercial property market. Whereas in Britain it could be central government policy that acts as a catalyst, in the Netherlands it was the economic circumstances.
‘Who are we still building industrial parks for?’
This passive-aggressive line is the actual title of a Dutch policy report from 2007. The thinly veiled exasperation gives you an idea about the country’s office market situation at the time.
How did it get to this?
About 20% of all industrial parks in the Netherlands were built in just 10 years, between 1996 and 2006. This may sound like a bit much.
That’s because it is.
Especially if you consider that 10% of industrial premises now lie empty, according to official figures. Unofficially it’s said to be twice as high (companies using only 10% of their buildings’ capacity are not counted).
What went wrong?
The Netherlands experienced a prolonged period of economic growth that started in the 1990s. Demand for commercial property soared and many local governments gave the go-ahead for brand new industrial complexes.
The industrial hearts of towns were traditionally located in or on the edge of the town’s residential areas. However, local councils could earn a lot from developing land next to motorways located a bit farther from the city centre.
This was considered a win-win: councils had an easy way to grow their income and companies could benefit from new buildings at lower rents. At the same time authorities hoped these parks would increase local employment rates.
So far, so good.
What they didn’t know (or didn’t care to know) was that their neighbouring council was often thinking the exact same thing. And even if they didn’t think it already, they would catch up soon.
You see, a brand new industrial park with cheap buildings tends to attract companies in the wider area. The only way for neighbouring towns to keep firms from leaving is if they build new, shiny offices themselves.
Before the government caught up with what was happening, the country was left with a plethora of idle office buildings.
Old industrial parks, often closer to the city and therefore more expensive to rent, were deserted one by one. Everyone wanted to move to the new industrial centre. But after economic growth hit its peak, even these new offices didn’t fill up anymore.
The new industrial parks didn’t do much to increase employment rates, either. In the end it was mostly the same companies relocating to a new building in the same area.
As the old parks fell into decay towns were left with a big boil they were unable to pop. After all, these parks weren’t exactly a showcase for their towns. What’s worse, they hardly ever lend themselves to a makeover (to turn them into residential areas or parks, for example).
In the past two decades many concrete wastelands have been added to the Dutch landscape. A lack of co-ordination between city councils and an increasingly competitive office market were at the root of the problem.
If British councils are encouraged to attract business by undercutting neighbouring towns, it’s unlikely to improve cross-town communication. This could lead to a race-to-the bottom and the country ending up with a glut of office space.
Recently, the Netherlands has seen a shift in policy. In part this can be explained by simple maths: tighter budgets forced councils to stop building.
Another point is that central and regional governments have staged an intervention. Projects are now aimed at revitalising existing industrial parks. Provinces are also keeping the ‘every-man-for-himself’ attitude of local councils better in check.
There are reasons to assume that this won’t happen in Britain, though. At least not in the short term.
First of all, the rise in commercial property in the Netherlands occurred in an economic boom. It’s unlikely to have taken place in a more uncertain time like the present. Presently, most councils would sooner cut than invest.
Secondly, it wasn’t government policy that initiated these events but rather the lack thereof. Since it may become official policy in Britain its impact and development may be more closely monitored.
Still, it’s good to realise the possibly negative side-effects of the chancellor’s plans. The Dutch case could act as a lesson to prevent the same things from happening here.
Forewarned is forearmed.