What “Good Growth” Factors Make UK Cities Attractive to Development?

Jobs, income, health and housing are among the top priorities to UK residents. This is why businesses and workers are relocating to places other than London.

The Tech City UK Cluster Alliance, an industry group focused on the development of the technology sector throughout the entire country (i.e., outside of London), issued a surprising report in early 2015. In the analysis presented in “Tech Nation, Power the Digital Economy 2015,” the CEO of the group revealed that 74 per cent of the country’s digital businesses are outside of Inner London, with 21 digital clusters of innovative enterprise in as far-flung places as Edinburgh, Cardiff, Newcastle, Belfast, Hull and Bournemouth & Poole.

But that’s not to say the entire future of Great Britain rides on broadband and wireless technologies. Getting past digits, the world still needs widgets – and the people who make them, the lorries that distribute them and the ships that sell them across the globe. The savvy investors may find their gold in technology, but they are just as likely to make a good return on assets in other sectors. Even tech companies need to build data centres and office buildings, and their employees need homes to live in. Growth necessarily requires land on which to build.

This all speaks to a generalised approach to decentralisation and focused efforts by the Government to encourage growth throughout the country. London has become unaffordable and in certain respects unsustainable, what with global investors buying up much of the luxury housing and driving up the costs of doing business because employees need to be paid much more in order to afford living there.

In another study, the consulting firm PwC joined together with think-tank Demos just a few years ago to look at what makes for sustainable growth in UK cities. What they found was a host of factors that neatly define what will enable a Cardiff, for example, to grow its tech sector but also be a place where a diverse array of businesses can perform over time – including through economic hiccups that might cripple a single industry-centric town.

The PwC/Demos study was presented in “Good Growth for cities, a report on urban economic wellbeing” (November 2012), based on a survey of the general public, business leaders, politicians and policy makers, combined with available data. The key factors defining a healthy local economy were the following:

Jobs – Considered the number one priority, well-paying employment enables almost everything else. Income and jobs were considered together (and thus weighted in the indices of the report) to account for about one-third of what defines a good growth city.

Income – While the importance of this cannot entirely be extracted from the same feelings about jobs, the distinction might be made that good pay scales certainly trump lower wages. The nature of a local economy and the relative factors of education are important contributing functions.

Health – Still largely linked to income but also to access and adequate local facilities, health was considered by survey respondents to be mostly at a par in importance with income. The two factors also are strongly correlated in that cities with higher incomes report better satisfaction with their health.

Time with family – Surprising to some, this ranked so high that a large portion of working people said they would forgo some income in order to spend more time with family. Londoners who work long hours and endure long commutes are most disadvantaged in this regard.

Housing that is affordable – This factor is often inversely related to other success factors (jobs and income), even though many claim it as a priority. Cities such as Bristol, which has attracted investment and jobs, ranks low in housing affordability; this might hamper its future growth, a “Londonisation effect,” so to speak.

Income distribution – As defined by the ratio of median to mean income, London scores low because of the pay disparities between service workers and highly compensated executives in the inner neighbourhoods. In some of the outlying boroughs, income distribution evens out a bit more, as it does elsewhere in the country.

Economy wide sectoral balance – This is about the share of manufacturing to total output, a means to assess the diversity of the business sector.

Environment – Largely measured as carbon emissions relative to GVA (gross value added), Bristol, Edinburgh and London received the best scores in this regard. The study authors suggest assessing sustainable growth holistically by incorporating environmental measures together with social and economic issues.

Transport – Average commuting time to work, a factor which scores lower where housing costs are unaffordable and the cities are bigger.

Future – Technically “providing for future generations,” this measures the per cent of households where long terms savings such as ISAs and stocks and bonds are held that can benefit children and grandchildren. It roughly correlates with income and income distribution scores.

Important to consider is how London ranked “average” or “below average” on all but three indicators (income, health and environment). Why? The Capital City’s lack of affordable housing, long working hours and congestion are hugely negative offsets to higher wages there. If somehow homes can be built near jobs, that would change.

Of course, land must be available and those orchestrating development need to understand what those cities already are planning to accommodate and support growth. In places such as Bristol, where growth is high but housing lags behind, it is likely a good place to invest if the land is available.

Investors should consider the local economies of where building is proposed, as well as their own personal wealth-building objectives and variables. An individual financial advisor can help balance those considerations.

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