UK Business Improvement Districts (BIDs) are partnerships with the power to decide on mandatory additional taxes to pay for extra services such as increased security, business support and recreational events. Studies have shown that BIDs reduce crime in their areas. Francisco Nobre and Stefano Cellini write that BIDs can also lead to higher house prices, which can lead to gentrification.
Would you like to live in an area where local shops and businesses pay to keep it safe and clean? This question is topical for US and UK cities, where local businesses have established so-called Business Improvement Districts (BIDs) to raise funds to improve the quality of their communities. Since 2005, more than 65 BIDs have been established in the only metropolitan area of London alone, representing one-fifth of the entire population of such districts in the UK (see Figure 1). We set out in the UK capital to investigate whether BIDs have increased house prices and affected their neighbourhoods. Overall, we believe that house prices have increased by at least 3% within their boundaries and influenced the household composition of local residents.
Figure 1. Map of London BIDs
Organization and Objectives
In the UK, BIDs consist of partnerships of occupiers (or owners) of commercial property within a local authority, with the power to determine a mandatory additional tax, set aside to pay for additional services and improvements in their area. These services complement local authority spending in their area and range from increased security measures to business support and recreational events.
The group first proposes the creation of a BID to local businesses, gathers their opinions, and then organizes a vote on whether to go ahead with the project. Approval requires a simple majority of both the total votes and the tax assessment value, meaning that approving businesses must represent at least 50% of the total value of commercial property in the BID. Assuming this vote is positive, a management structure made up of representatives of relevant stakeholders is created and a strategy is developed. The BID has a five-year term and requires another vote for renewal.
The median annual budget of a London BID is £338,474 (in 2010 prices), with central London BIDs spending millions of pounds per year. Around 86% of BIDs levy between 0.5% and 1.5% of the taxable value of commercial property, with BIDs charging higher rates having smaller budgets.
preliminary survey
Previous studies have found that BIDs are highly effective at reducing local crime. BIDs spend an average of 36% of their budget on local crime and environmental quality. Los Angeles saw reductions of 6% to 10% between 1990 and 2002, with the decline in serious crimes being more pronounced. England and Wales saw declines of around 2% per quarter between 2012 and 2017, with the impact on shoplifting, anti-social behavior, and policing crimes being more pronounced. Researchers found that criminal activity shifted to commercial areas one to two kilometers away from the BIDs.
In New York City, BIDs had a lasting impact on commercial property values, which increased by almost 16%, while for residential properties, the impact was felt during the BID creation process, but prices fell again once the BID was created. While these studies have found that BIDs affect local crime and commercial property values, we examine their impact on the housing market.
Our Results
By constructing a 20-year geocoded dataset including both property transactions and housing planning applications for the Greater London region, we present evidence that these privately provided ‘extra’ public services are capitalised into localised house prices.
We estimate that the establishment of a BID increased house prices by at least 3%, with benefits spilling over to surrounding areas within 200-300 metres of the district boundary. These effects were driven by increased demand for the goods and services that the BID provided. We found no differences in underlying trends in housing supply before and after the opening of a BID.
Using available budget figures and BID tax rates, we calculate that for every £1 spent by the district, the public benefits by around £1.26, which is a measure of the social value of these private expenditures. Because residents do not contribute directly to the BID fund, any increase in house prices can also be seen as a positive externality for existing households.
We also show associations between neighbourhood exposure to BIDs and resident household profiles over time. Comparing census-reported socio-demographic characteristics between 2001 and 2021 between blocks in BIDs and blocks outside BIDs, we find that BID neighbourhoods experience different trajectories of household characteristics. The most striking differences are in ethnic composition and occupation. Blocks in BIDs show greater persistence of white households and lower rates of ethnic minority growth, despite a decline in the white population and a rise in the ethnic minority population across London.
There was also a further increase in the share of managerial and administrative professionals among BID residents, adding to consistent evidence of amenity-driven demand for certain neighborhoods and how it impacts neighborhood composition. Research by urban economists has shown that the increasing value of amenities in urban areas, such as safety and vibrancy (leisure and recreational facilities), increases the attractiveness of downtowns, especially to highly educated professionals.
Conclusion
Our findings raise an important point about the role BIDs play for neighborhoods: local BIDs not only influence investment destinations but can have broader economic consequences: Neighborhoods within BIDs not only enjoy the services and amenities that come with them, but also undergo gentrification, consistent with other empirical findings on urban revitalization.