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Regenerating London Docklands

Although this report was commissioned by the Office, the findings and recommendations are those of the authors and do not necessarily represent the views of the Office of the Deputy Prime Minister.

This summary presents the main findings and conclusions of the final evaluation of the London Docklands Development Corporation (LDDC), which was commissioned by the Department of the Environment, Transport and the Regions (DETR). The evaluation was carried out by Cambridge Policy Consultants Ltd, in association with Colliers Erdman Lewis (property), Gillespies (environment) and the London School of Economics (housing) and follows an earlier baseline report undertaken by Price Waterhouse. The evaluation was carried out between 1997 and 1998, which included the final year in the life of the Corporation, which was wound up in March 1998. By then it had carried out a major regeneration scheme over a 17 year period commencing in 1981. For part of its life, from 1982 to 1992, the LDDC was supported by the designation of the Isle of Dogs Enterprise Zone which played a significant part in the overall regeneration outcome.

Key Findings

  • The LDDC has successfully tackled the widespread multiple market failure which prevailed in the London Docklands in 1981. Failures in land, housing and commercial property markets have been addressed and labour market failures have been alleviated by a combination of training projects, improvements in accessibility in and out of Docklands and the creation of new local jobs.
  • When all projects are completed the total public sector cost of regenerating Docklands will be of the order of 3,900 million, 48% incurred by the LDDC, 25% by London Transport and 27% by the Isle of Dogs Enterprise Zone. Almost half the public sector cost of regenerating Docklands was devoted to transport infrastructure.
  • Private sector investment in Docklands, at 8,700 million by March 1998, has been substantial and will continue to increase well into the next century.
  • The LDDC has generated a wide range of economic, environmental and social benefits. Prominent amongst these are over 24,000 housing units and over 80,000 gross jobs within the Urban Development Area (UDA). Housing tenure is substantially more varied, employment is three times higher, the number of firms has increased fivefold and the new stock of housing will accommodate an additional 45,000 population.
  • With respect to value-for-money, the evaluation concluded that every 1M of public sector cost generated net additional benefits in the UDA of 23 jobs, 8500 sq m of office floorspace, 7.8 housing units plus many other diverse and intermediate benefits. Since almost all the costs have been incurred and some of the benefits have still to materialise, this cost-benefit ratio should be more favourable by a third when the end state position is reached in 2010 or 2015.
  • In spite of vociferous comments to the contrary over the life of the Corporation, the LDDC generated substantial benefits specifically for local communities and residents. The amount of new social housing is higher than it would have been in the absence of the Corporation.
  • In the wider local economy, the net impact of LDDC activities is lower, but even so, the LDDC generated an additional 23,000 jobs in Central London by increasing the supply of high grade office accommodation which led to a more competitive financial centre.

The London Docklands Urban Development Area (UDA) borders the City of London at its western end and includes what in 1981 were some of the most derelict and deprived areas of London situated within the three London boroughs of Tower Hamlets, Southwark and Newham. Specifically the UDA boundary includes within it Wapping, Limehouse, the Isle of Dogs, the Royal Docks, Beckton, Surrey Docks and Bermondsey Riverside - an area of eight and a half square miles.

Objectives and Powers of the Corporation

Under the 1980 Local Government Planning and Land Act, the LDDC's remit was set out as for other urban development corporations, namely to bring land and buildings into effective use, to encourage the development of existing and new industry and commerce, to create a more attractive environment and to ensure that housing and social facilities were available to encourage people to live and work in the area. To help achieve these objectives, the Corporation was given powers of development control, whilst planning powers remained with the local authorities and transport and road infrastructure responsibilities remained with the Department for Transport, London Transport and local authorities. The original intention was also that the LDDC was to have no active involvement in social housing, community development, training, education and health, although in the event the Corporation became increasingly active in providing social facilities. The LDDC was not permitted to fund directly any commercial, industrial or housing development on its own account - this was to be carried out by private developers on sites prepared and accessed by the LDDC. Although development framework documents were prepared for sub-areas of Docklands, which illustrated potential opportunities and options for development, these did not constrain a readiness to respond pragmatically to what the private sector was willing to do at different points in the economic cycle, to changes in the emphasis of Government regeneration policies more generally, to the requirement to accommodate the needs of local authorities and local communities and to other changing pressures and priorities.

Addressing market failures

The baseline study (Price Waterhouse) showed deep-seated multiple market failure in Docklands in 1981. All markets were adversely affected with no or little activity in the markets for land, commercial premises and private housing, extensively under-used labour resources, and a justified image of dereliction and inaccessibility. It took the LDDC all of ten years into the early 1990s to address effectively these failures, mainly because removal of multiple market failure required, inter alia, large transport infrastructure projects to be completed which had long planning and construction periods. National economic recovery since 1994 has seen markets working more effectively in Docklands and the future pace of development will be dependent on London-wide and national market conditions. The Docklands communities are now much more closely integrated into the wider London labour market and activity rates are high whilst unemployment is falling. The LDDC has greatly alleviated institutional failures which in 1981 had resulted in Docklands communities experiencing sub-standard education, health and social and community facilities and a badly run-down social housing stock. It is the effective removal of constraints and failures in the working of markets which will ensure the durability of benefits and secure a long term momentum in the local economy of Docklands without recourse to further public sector assistance. Whilst this threshold has been reached in most of the UDA including Wapping and Limehouse, Beckton, Bermondsey and Surrey Quays, and probably the Isle of Dogs, more public sector work is required in the Royal Docks before the private sector alone will generate and maintain momentum.

The public sector costs of Docklands regeneration

The alleviation of market failures in Docklands has not been achieved without considerable public sector costs. These include costs incurred directly by the LDDC (net of receipts for land disposals), the cost of tax revenue foregone associated with the Isle of Dogs Enterprise Zone and the costs incurred by other public sector organisations, notably by London Transport. Which costs to include in the regeneration of Docklands is not a straightforward matter in relation to major transport projects which contribute to Docklands regeneration but also benefit other parts of London. In our central estimates, the costs of the Lewisham extension of the Docklands Light Railway (DLR) are included but only about a quarter of the costs of the Jubilee Line Extension are included. Also the amount of tax revenue foregone as a consequence of the Enterprise Zone are difficult to estimate since allowances for Canary Wharf Phase II will not be known precisely until 2002.

When all projects are completed the evaluation concludes that the total public sector costs of regenerating Docklands, measured at current prices, will be of the order of 3,900 million. Of this some 1,868 million (net of receipts) (48%) was incurred directly by the LDDC, about 985 million (25%) will have been incurred by other public sector bodies, mainly London Transport and about 1,060 million (27%) will be attributable to EZ tax revenues foregone.

Of the direct LDDC expenditure some 44% of gross costs are associated with transport and access improvements, 13% with social housing and social and community facilities, 8% with land acquisition, 7% each with land clearance, land servicing and environmental improvement, 4% with maintenance, 2% with promotion and 8% with administration/management costs. Thus almost half of the total public sector costs of regenerating Docklands have been devoted to transport improvements and a quarter to tax allowances to the private sector.

Private sector leverage

Overall private sector investment in the construction of commercial premises and houses is estimated by the LDDC to be 7,658m by March 1998 (current prices). The addition of 650m of private sector contributions to infrastructure and 417m to the purchase of UDA development sites would take total private sector expenditure to at least 8,700m.

Regeneration benefits

These were examined fully in the evaluation, commencing with an analysis of gross outputs within the UDA and from there progressing to estimates of additional benefits within the UDA. Additionality within the wider local economy is then considered using two alternative definitions of the local economy - namely:

  • the three Boroughs of Tower Hamlets, Newham and Southwark
  • the three Boroughs plus the City of London and Westminster

The remainder of the analysis of benefits attempts a disentangling of benefits as between the LDDC and the EZ. The attribution process is very complex and the result can only be regarded as approximate. An attempt is also made to establish an appropriate attribution of benefits to the improvements in transport infrastructure. There are also significant wider benefits.

The work on gross outputs identifies and measures some 30 gross output indicators which emphasises the wide range of gross outputs generated in the UDA by LDDC regeneration activities. Many of these can be regarded as intermediate outputs which were required in order to generate the important downstream economic and social outcomes in the form of increased population, housing, employment and improved quality of life. Gross outputs have been estimated at March 1998 and where possible at end-state. Critical gross output indicators for the further analysis of additionality are gross jobs and new housing units built. At 1997/8 these are estimated at 88,000 and around 24,500 respectively but they will be significantly higher when the end state position is reached.

The evaluation concluded that additionality1 of benefits within the UDA boundary is high, with deadweight2 estimated at 10-12% and displacement3 within the UDA very low. Most of this additionality is retained in a wider local economy made up of the three London Boroughs of Tower Hamlets, Southwark and Newham. Additionality falls to about 26% for jobs in a wider local economy which also encompasses the Cities of London and Westminster where many of the Docklands jobs have transferred from. Even so, these results suggest that the LDDC has led to 23,000 jobs being attracted to or retained in Central London (including Docklands) which in the absence of the LDDC would have moved out or would not have moved in. This has been achieved by increasing the supply of high grade office accommodation leading to reduced rents for office space and by accommodating additional staff working in City firms. To the extent that the City is made more competitive as a result there will be some modest supply side national gains.

The results of the analysis which attempted to disentangle the net additional employment benefits as between those caused by LDDC activity and those caused by the EZ revealed an attribution of 70:30 for jobs in the Enterprise Zone area which translates into 85:15 for the UDA as a whole. This attribution is similar whether based on the views of developers or based on the views of occupiers. Thus for every 100 jobs on the Zone 70 are there because of LDDC activity and 30 as a direct consequence of the EZ. Since the EZ covered only part of the UDA, the UDA attribution moves in the direction of the LDDC. The LDDC comes out of this assessment as much the more important of the two because of its role in providing critical transport infrastructure and also because the EZ designation itself was caused in part by the existence of the LDDC. Of the 61,200 net additional jobs in the UDA as a whole at March 1998, 9,200 are attributable to the EZ and 51,800 to the LDDC. The equivalent estimates for the end state are 18,400 for the EZ and 103,600 for the LDDC.

Transport infrastructure accounts for 34% of employment additionality in the UDA which is equivalent to 20,700 jobs at 1998 and over 41,500 jobs at end-state. Of this total transport impact, the Limehouse Link was responsible for creating 6,000 jobs at 1998 and perhaps up to 12,000 at end state.

One important wider benefit of LDDC activities relates to very large numbers of non-UDA residents who will use the Docklands transport infrastructure to reduce their journey times when travelling in and around or across London over the next 30 to 50 years. The saving per journey may only be a few minutes but even if a low value is placed on time released for work or leisure, the overall benefit is likely to be large because the number of daily journeys will be large and the benefit will accrue over many years.

Value for money

The analysis of programme benefits and programme costs are brought together to provide estimates of cost-effectiveness or value-for-money. Cost-benefit accounts are shown separately for the position at 1998 and at end-state. The net Exchequer cost is set against a basket of benefits measured in different units. It is not possible to add the benefits together into a single measure of value. A housing unit cannot be added to a sq metre of office floorspace, a job and a railway station. It is possible to indicate, however, the extent of the key benefits achieved on average for every 1M of Exchequer cost. Thus, by 1998, every 1M of expenditure had generated, in the UDA, 23 additional jobs, 8500 sq m of office floorspace and 7.8 housing units plus many smaller diverse and intermediate benefits. The benefits should be significantly larger at the end-state.

To examine cost-effectiveness in the wider local economy and to compare the cost effectiveness of different parts of the public sector regeneration activities, attention is focused on only one of the key benefits, namely jobs. This is a means of estimating relative cost effectiveness but is misleading to the extent that there are other types of benefit in the basket, which are not being included in the cost/benefit ratio. The main points to emerge are:

  • value for money at end state should be 34% better than in 1998;
  • cost-effectiveness deteriorates as the wider local economy is extended. For a more narrowly defined local economy of the deprived Boroughs of Tower Hamlets, Southwark and Newham the cost per net additional job is 56,000 at 1998, falling to perhaps 36,000 at end state;
  • cost-effectiveness in the non-EZ part of the UDA is 40% more favourable than on the EZ itself;
  • within the EZ itself, the LDDC and other public sector funded activities were more cost-effective than the EZ incentives themselves. The analysis suggests high deadweight in costs for the EZ incentives.

At March 1998 maximum value-for-money has not yet been fully secured, as the majority of public sector investment has taken place, but there are significant further benefits expected. The establishment of a major office centre in the Isle of Dogs, which is only now approaching a viable critical mass (having taken four years to construct and six years to reach full occupancy rates) has been at a high cost for the public sector. This was partly caused by the substantial transport infrastructure required and partly by substantial tax allowances paid under the Enterprise Zone initiative which included considerable deadweight. Until Phase II of Canary Wharf is completed and occupied (Phase II is envisaged to be two and a half times larger than Phase I) full value-for-money for the public expenditure incurred will not be achieved. The evaluation team consider it may not be completed and occupied until well into the next century. Such a timespan reduces the prospect of favourable end state value-for-money. The amount of development which has still to take place in the Royal Docks, will also delay the achievement of full end-state benefits on which LDDC cost effectiveness depends.

Benefits for local communities

The main findings about local community benefits are as follows:

  • In 1988 the Public Accounts Committee (PAC) noted that, up to then, the LDDC had spent only 14.6m on social and community development. The PAC welcomed the LDDC's plans to spend almost 100m between 1987/88 and 1992/93 in support of social and community facilities in order to strike a reasonable balance between the physical development of their areas and the social and other needs of those living there. This enlarged programme has been carried through successfully.
  • By March 1997 the LDDC had spent 110m on social and community development which represented 7% of LDDC net expenditure. About half the expenditure was in education and training. This spend amounts to 1,350 per head of 1997 population in the UDA. Most of the population will have benefited from this activity because the LDDC has helped to fund improvements for all the schools and health centres within the UDA.
  • Some 44% of the new build social housing units in the UDA between 1981 and 1998 can be attributed to LDDC activities and funding.
  • The LDDC has improved the quality of 8,000 existing social housing units in the UDA.
  • The LDDC, in the winding up and de-designation arrangements with UDA local authorities, has attempted to secure future momentum in community development through the financial endowment of representative community groups such as the Royal Docks Community Trust.

Dedesignation/exit arrangements

Key lessons from the LDDC experience of de-designation to local authority and other successor bodies when substantial liabilities have to be transferred are:-

  • the principle of a large regeneration agency winding up by stages and sub-areas, as aspects of market failure are addressed has proved to be effective and efficient and could be adopted by other large scale urban regeneration initiatives;
  • de-designation of the LDDC has taken 6 to 7 years to complete and, even in that period, not all issues will not have been finally resolved;
  • ground rules to anticipate and prevent future de-designation problems should be established by regeneration initiatives at the outset so that long term commitments and liabilities extending beyond the life of the initiative are not entered in to;
  • a dedicated designation team is required to effectively execute the wind-up and transfer of liabilities on the scale experienced by the LDDC;
  • the management skills and expertise required for resolving de-designation issues are specialised and demanding with detailed and painstaking work on documents being combined with surveying, legal and negotiating skills;
  • large scale de-designation exercises require centralised recording systems of all assets and liabilities if they are to be carried out effectively and efficiently;
  • the de-designation of major transport infrastructure from the LDDC to the Highways Agency is proving to be complex and will not be completed by the wind-up date.

Overview

London Docklands is a classic example of a disadvantaged urban area in which output/outcome indicators change radically from the baseline position within the lifetime of the regeneration scheme. Moreover, because the UDA was largely empty and derelict in 1981, the subsequent positive improvements from baseline indicators and their magnitudes bear a reasonably close resemblance to what the LDDC has achieved by way of gross outputs and net economic, social and environmental benefits and outcomes. To a large extent changes in baseline indicators reinforce the results of the evaluation as conducted along lines recommended in Treasury evaluation guidance. Both confirm that this major initiative has achieved much by way of comprehensive regeneration of the UDA.

Changes in key baseline indicators in the UDA

 

1981

1998

End State
Forecast

Population (000s)

39

84

115

Employment in UDA (000s)

27

84

168

Stock of housing units (000s)

15

36

50

of which privately owned (%)

5

44

52

Number of firms in UDA

1,014

2,600

5,000

Number of Residents working in UDA

5,200

10,500

13,000

The experience of Docklands regeneration throws into prominence the importance of combining regeneration from within the UDA with regeneration measures which improve the accessibility of the originally deprived local area to the wider local economy. Although the Docklands UDA was immediately adjacent to one of the most prosperous and dynamic local economies of Central London, it had acquired the image of being highly inaccessible in 1981. The LDDC succeeded in securing radical improvements in accessibility through improved transport infrastructure to integrate the UDA with other parts of London's economy whilst also securing comprehensive renewal within the UDA and its local communities. The combined strategy will, at the end of the day, be successful. But the experience also highlights, that even with the benefit of an adjacent prosperous local economy, the costs of such comprehensive regeneration schemes are high and the time taken to secure the full range of benefits covers two or three decades.

Further Information

Copies of the evaluation report "Regenerating London Docklands" (ISBN 1 85112 090 4, price: 12.00) are available from:

Department of the Environment, Transport and the Regions
Publications Sale Centre
Unit 8
Goldthorpe Industrial Estate
Goldthorpe
Rotherham S63 9BL
Tel: 01709 891318
Fax: 01709 881673

Further copies of this summary can also be obtained from:

Dorrett Annon
Research, Analysis and Evaluation Division
Department of the Environment, Transport and the Regions
Zone 1/H4
Eland House
Bressenden Place
London SW1E 5DU
E-mail: d.annon@gtnet.gov.uk
Fax: 0171 890 3309

The Price Waterhouse baseline report was published as : "The Condition of London Docklands in 1981", DETR 1997, ISBN 1-851120521, price 12.00.

The full technical report on the final evaluation of the LDDC is available on request from the Department via the same contact as for the summary.

The Department of the Environment, Transport and the Regions publishes free information leaflets on a range of housing topics. For a copy of the Housing Publications Order Form please contact:

Department of the Environment, Transport and the Regions
Free Literature
PO Box 236
Wetherby
West Yorkshire
LS23 7ND
Tel: 0870 1226236 Fax: 0870 1226237

1:Additionality - the extent to which an activity is undertaken on a larger scale, takes place at all, or earlier, or within a geographical area of policy concern, as a result if it being granted special assistance.

2:Deadweight - output that would have occurred anyway, without any policy intervention.

3:Displacement - the extent to which the extra output resulting from a policy intervention leads to less output to other firms in a given area.

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