Research papers by Hans Koster covered in The Economist

If not for the Blitz London’s GDP would be 10% lower

Bombings don’t usually boost business. Quite the opposite: war tends to displace workers and destroy infrastructure, bringing even a buzzing economy to its knees. But according to a duo of economists, what happens in the decades after is worth a closer look. When Koster and Dericks investigated the economic effect of the Nazi’s London bombing spree during World War II, they discovered something counterintuitive. After much of the city was razed by bombs, London built back bigger. Taller skyscrapers led to a higher concentration of workers in the city. That stimulated London’s economy.

The Blitz bombings wiped out many of London’s historic sites. More than 30,000 bombs were dropped on the city, damaging or destroying 577,000 homes. Nothing else has impacted modern-day London’s built environment more. Before the war London had strict zoning laws. Getting permission to build was both costly and slow. But redevelopment after the war was often subject to less stringent rules. With many historic sites destroyed, fewer places needed to be preserved. As a result buildings constructed on bomb sites were taller. One standard deviation increase in the density of bombings resulted in a 6.45% increase in building height.

Bigger buildings brought workers together and spurred more economic activity, a phenomenon known as agglomeration. Sharing office space increased employees’ productivity and competitors moved in next door to each other to save on resources and get closer to both suppliers and customers. The clusters that emerged—finance in the City, law in Midtown and private equity in the West End, to name a few—saw huge returns. The economists estimate that travelling just three minutes outside the cluster reduces the agglomeration effect by 86%. 

Were it not for the Blitz, London’s urban centres would still be subject to planning restrictions that stifled their growth. Link to (paid) article in The Economist. The buildings and business that shot up in the aftermath of the war boosted London’s gross domestic product by 10%, equivalent to $50bn today.  

More generally, this shows that density restrictions are likely to cause bigger effects than urban growth boundaries, such as greenbelts.

In last week’s Economist, another paper by Hans Koster (accepted in the Economic Journal) was discussed in which it is shown that greenbelts do not cause a major welfare loss and may even generate a positive effect for England’s economy.