The dark secret underlying high infrastructure costs

In the UK we have two problems. 

One: we don’t have enough infrastructure. Commuters across the country face congestion and overcrowding; we haven’t built a new reservoir since 1992 and it’s blocking the delivery of new homes; new wind and solar farms can’t get plugged into the grid. 

Two: the infrastructure we do build is far too expensive. Just the planning application for the Lower Thames Crossing cost more than Norway’s longest road tunnel; Britain’s cheapest tram project was double the price of a typical tram project in France, and only just cheaper than France’s most expensive; HS2 is over £200m more expensive per kilometer than France and Italy’s latest high speed rail projects.

These problems are related. One major reason we don’t have enough infrastructure is that it costs a lot to build it, meaning that the Treasury – speaking on behalf of the UK’s taxpayers – is unwilling to fund it. One major reason it costs so much to build infrastructure is that we do it so infrequently, meaning that local governments have little experience of procuring it and we often lack the workers with specialised skills to deliver the projects.

This relationship hints at the dark secret of infrastructure costs: it is a feature, not a bug of the system. Infrastructure costs have got high because lots of people want them to be high. And fixing those incentives is the only robust way towards solving the problem.

One story of NIMBYism, which I have used myself in the past, says that it arises when the benefits of something are dispersed but the costs are concentrated. Then, the argument goes, locals will inevitably oppose development nearby, be it housing, or railways, or roads, or reservoirs, due to the disruption, shade, noise, or traffic. Beneficiaries, by contrast, are spread all over the place.

More flights from Heathrow benefits literally millions of people around the country who get to enjoy a better labour market in London, or work for airlines, or in tourism, or just get to enjoy lots of convenient flights to a wide range of destinations. If you are not in the flight path, every 1% further you get away from a major airport reduces your house price 0.15%.

But if you live in the flight path, then flights from Heathrow cause horrible noise pollution. It’s much worse for any individual person in potential flight paths than it is better for any of the beneficiaries of a bigger airport and stronger South East economy, so it’s easier for the objectors to organise and block the third runway the country has been planning for seven decades.

The problem with this theory is that if doing something is overall socially beneficial, by definition the benefits of doing it should be larger than the costs to the objectors. In principle you should be able to share some of those benefits with the objectors until the benefits outweigh the costs for almost everyone, except perhaps some tiny group of diehards. That may not literally mean handing them cash, but could mean building them new roads, buying them new houses, laying them out a new park, or adding buildings to their local school. There should be a package that locals would approve.

Lest this seem unlikely, consider the Squamish Nation, 87% of whom recently voted to approve 6,000 flats and 200,000 square feet of commercial space in towers on 11.7 of the 350 acres they own abutting central Vancouver. Vancouver bylaws do not apply to the Squamish reserve, despite its location, and this was confirmed by the Supreme Court. Deciding for themselves, the Squamish did not impose affordable housing/inclusionary zoning, saying ‘the project was designed to maximize economic benefits for the Squamish Community’. They don’t seem to have replicated any of the other requirements Vancouver requires either.

Consider also estate regeneration. In 2018 the authorities in London changed the system for redeveloping social housing. Those intending to redevelop the estate, usually at a much higher density, would have to get approval from the residents themselves. If residents approved, it would generally be waved through by the planning authority. Since then, there have been 31 ballots on 30 schemes: 29 out of 30 were won the first time, many by huge majorities. The 30th was lost narrowly then the offer was improved and the ballot was won.

How did the providers win the ballots? They massively improved the design quality of the estates, turning concrete into bricks and restoring streets. They also gave every existing resident much nicer and larger properties. And they paid for it all by selling off the extra flats and houses they produced by increasing the density of the site which the locals were happy to approve. For example, Kidbrooke Village, with 5,300 homes, replaced the Ferrier Estate, which had 1,900.

Above: Kidbrooke Village. Below: the Ferrier Estate, on which it was built.

Compare with HS2. With HS2 the locals had no power to block or approve any particular proposal, and the developers had no ability to go directly to the locals and make a deal to get approval. What do rational locals, especially the diehard opponents, do at this point? They push on every lever in the system to try and add as much cost as possible to the projects, aiming to ideally stop the project, but if not then at least massively delay it. In the UK they usually succeed with both.

In the UK planning system there are many ‘veto players’ who either legally or practically must give their say-so for a project to go ahead. If you get to your approval decision with the Planning Inspectorate or the relevant minister, and some element of process has not been followed, the diehard opponents of the scheme will make sure this is raised. So each project has an incentive to massively increase paperwork, assessments, newt surveys (not a joke), and consultations – the planning equivalent of defensive medicine, using every test or remedy in the book just in case.

How did these veto players get there in the first place? The same mechanisms. There is no support around the country for a systematic plan of cracking down on locals everywhere. Everyone is a local somewhere. When Robert Jenrick proposed to ‘tear up the planning system’ and it became clear that this meant not just a concentrated dose of housing in a few important places but an increased supply everywhere, his scheme was toast. As was every previous postwar attempt to increase housing supply by forcing locals to accept it more.¹

Top-down force actually makes things worse, ratcheting the effect upwards each time. Every time the government attempts to steamroller infrastructure or housing through, there is support for added process, especially slow and expensive discretionary process, to make sure everything is being done ‘properly’. The justifications will always be made in socially acceptable terms, like the importance of biodiversity, bats, nitrogen levels in rivers, affordable housing, and so on. But the support for these rules generally has a deeper, underlying, and personal motivation.

So delays and process dramatically increase the cost of projects, meaning there is nothing left over to compensate the other locals – those who are not diehard opponents – for the real, but negotiable downsides they experience from the development. In terms of the Squamish Nation, they have had to do so many environmental assessments that they can’t make a substantial profit from developing precious ancestral land, so all the potential moderates tip towards opposing them as well. And as they tip towards opposing projects, they also support the cynical accretion of costs that we see across the system.

This is what David Foster and Joseph Warren call ‘the NIMBY problem’ in a brilliant paper from 2022. If we don’t cut out veto players, by offering locals a direct way to approve proposals from infrastructure (and housing) developers, then we will never be able to tackle all of the crazy cost additions that are preventing us from developing world-class infrastructure.²

1.  See also how Houston, Texas, managed to massively upzone itself by giving neighbourhoods the right to opt out as a boiling-off mechanism.

2.  This is by no means the only cause of high costs, or the only factor making costs vary around the world, but it has a dangerous supportive effect upward on all cost-increasing factors in the places where it operates.