The Airport Commission’s interim report on airport capacity in London

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Professor Michael Luger, Director for the Centre for Infrastructure Development, comments on The Airport Commission’s interim report on airport capacity in London:

The  Airport Commission, chaired by Sir Howard Davies, issued its preliminary report Tuesday, putting new runways at Heathrow and Gatwick at the top of the list for immediate consideration.  Members of the Stop Stanstead Expansion group were delighted for the reprieve, but Hacan (the anti-Heathrow expansion group) and the Gatwick Area Conservation campaign vowed to fight against the Report’s findings. The fact that the alternative to build a new hub airport in the Thames estuary – supported fervently by Boris Johnson – was relegated for later study rather than eliminated from consideration, drew the ire of the Medway Council of Kent.

This is a classic example of local groups recognising the need for a project – who can deny that the southeast of England has too little airport capacity? – but ardently fighting to have the project built elsewhere, not in their jurisdiction (Not in My Back Yard).  In this case, at least, there does not seem to be a BANANA syndrome – Build Absolutely Nothing Anywhere Near Anything).

If we agree that something has to be built somewhere near something, but recognise that anywhere we choose will be met by strong local opposition, what can we do to proceed?  One proposal was tabled by the Institute of Economic Affairs: tax the airport more (hence, the passengers who use it) in order to reduce the property taxes required from residents in whose back yard the runway is built.

That proposal ignores a basic principle of urban economics: that over time a perceived disamenity will decrease the value of property. Since property (Council) taxes are general ad valorem (based on the value of the property) the tax burden will be reduced anyway. Put simply, if I were to have bought a property near Heathrow last year, the price I paid would have reflected the nuisance of the traffic and noise nearby. The construction disruption and additional air traffic following expansion could lead to further reduction in value which upon tax reassessment will reduce property taxes.

In this example I could suffer what economists call a “windfall loss” if the next rational buyer factored in a greater disamenity than I foresaw, when s/he offered to buy my house. If that were to happen, a one-time bribe would be justified rather than a cut in annual taxes.

However, the offsetting truth is that technology has advanced rapidly (perhaps more rapidly than I may have expected when I bought this hypothetical house near Heathrow) so that noise and pollution levels are not as bad as I feared.  Indeed, aircraft noise has fallen by 50% in the last 10 years and is predicted to be cut an additional 50% in ten years’ time according to IATA and NASA. Therefore, I would have realised a windfall gain already since I would have paid less than what the next buyer would offer based on the noise level.

Considering all this my advice would be to choose the expansion option based on the best cost-benefit analysis factoring in construction, land acquisition, environmental damage, supporting infrastructure costs, proximity to users, and so on.  Recognise that whatever option is chosen will generate local opposition, and respect that fact of human nature. But don’t increase the project cost by concocting bribe schemes that will only end up distorting the market more.

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About Author

Michael is a Professor and Director of our Centre for Infrastructure Development. Michael’s chief research interests are in the application of science & technology to regional economic development, infrastructure planning & finance, & entrepreneurship & new enterprise development. He also has published widely in environmental impact and public policy. Michael is interviewed regularly by broadcast and print media as an authority on all of these matters.

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