In my last blog, I looked at the Productivity Commission's recent take on the rationale for urban planning. I questioned the Commission's well
founded rationale for urban planning being based on the three areas of spill-over effects (externalities); provision of public goods; and land use and
infrastructure co-ordination. I said
that I found the Commission's take on planning pretty limited, particularly
given it is supposed to be a first principles review.
First up, it is necessary to distinguish between planning
that aims to control something, versus planning that seeks to enable, promote
or encourage something through non-regulatory means. I get the feeling that the
Commission sees any controlling aspect of planning limited to managing
spill-over effects, with their second and third rationales more on the
positive, enabling side of things.
In this blog I want to discuss whether there are reasons for
planning intervention that go beyond 'spill-over' effects before looking at the enabling, positive role of planning in a later blog.
Generally it is commonly held
that a reason for public intervention can be to address a market failure.
Market failure includes spill-over
effects, but are far from limited to this. Market failures are often associated
with:
- · time-inconsistent preferences,
- · information asymmetries,
- · non-competitive markets,
- · principal–agent problems,
- · externalities (spill-overs),
- · managing public goods.
These days you might add 'equity' or 'increasing inequality'
into the list. You could also add a
tendency towards boom and bust. While neither are matters directly addressed by
the RMA, other urban planning approaches more clearly define equity as an
important reason for action, while urban planning is often implicitly supported as it can bring a degree of stability to the urban land market, particularly the residential market. More on these two points below.
Looking at the listed bullet points above, the Productivity
Commission seem to have gone no further than the last two points. Their
discussion of infrastructure provision could possibly be listed under the
heading of principal-agent problems (there are different drivers for developers
and infrastructure providers which often mean inefficient outcomes arise), but
it is not clear.
Under all of the above bullet points there are reasons for
planning:
- time inconsistent preference: Think of short term benefits versus long term costs, or conversely long term benefits and short term costs.
- information asymetrics: Think about developing a site if there was no zoning and so there is no idea of what may go on next door or around the corner.
- non-competitive markets: Think of the difficulty of redeveloping existing suburban areas due to land fragmentation, or where there is a 'first mover disadvantage' rather than a first mover advantage in a greenfield area.
- principal-agent problems: Think of the issues of trying to co-ordinate infrastructure across different providers.
I'm not an economist, so I may have miss-interpreted these failures in some way. But I think the point is clear enough.
For my other two market failures, as our egalitarian
heritage steadily gets eroded I think spatial equity issues will grow and if we don't address them, then cities as a whole will suffer.
Smoothing out local booms and busts - is that also a role? If we are talking about residential
environments - people's homes and neighbourhoods - then stability is an
important aspect of social and economic well being. Now, neither reason means
'no more housing' in an area; in fact addressing equity and equitable access to
resources like housing, jobs, open spaces, transport and other infrastructure
may mean more housing in many areas (as well as more investment in other
areas) and deliberately requiring a mix of housing. So too with evening out booms and busts. Some
change and development that keeps housing choices relevant in all
neighbourhoods will help to reduce the chance of 'booms' in some areas and 'busts' in others. Too much one-sided development in the urban system can
be a bad thing - many of us would have witnessed the disinvestment that can occur
in neighbourhoods in American cities and the associated problems for the people
that get 'stuck behind' We have the first hints of this in some of our
provincial cities.
The point is that the government (and Commission) seems
intent on a stronger role for market forces in urban development. And its main
tactic to get there seems to be reducing regulatory barriers. No problem with that, but it is often an unmentioned fact that a greater role for market forces is also accompanied (over time) by the need for an expanded and more sophisticated set of
regulatory tools. So the end result can be both more market and more rules.
Yes, government failure (or perhaps in this case planning
failure) can and does occur. Just because there is market failure doesn't mean
that there is a rock solid case for intervention. Under each of the above
reasons for urban planning , there are also potential for planning to go
wrong. But equally, planning can help grease the wheels if done right.
Case in point is the current concern that planning - through
restrictive zonings - heightens non-competitive land markets, pushing up land
and house prices. So more competition is needed, and to get there we need fewer rules. But has the Commission really looked into what constitutes a competitive
land market? Maybe land markets are different from other markets. Maybe planning
actually helps provide confidence to urban investment and development markets because of their complexity and abundance of players.
This idea seems an anathema, but it may be the biggest benefit of
planning. Generating these benefits means better planning tools and techniques, not less.
Where is the proof? Good
question and I don't have the answer. The point that I'm trying to make is that the Commission have
taken the soft option and have, for a first principles review, not really
looked at the issue in a very compelling way.
