The search for competitive land markets

I have written a couple of blogs on the concept of commercially feasible development and what it might mean for planning. In this blog I want to discuss whether the concept of commercially feasible development capacity is really a search for a means to foster competitive land markets. Is the real target of the National Policy Statement on Urban Development Capacity enabling a more competitive development market, rather than just having enough capacity to meet demand, plus some? And if this is the target, what are the implications?

Under a competitive market, in theory at least, companies earn just enough profit to stay in business and no more, because if they were to earn excess profits, other companies would enter the market and drive profits back down to the bare minimum.

As the theory goes, what is going to drive down house prices over time is more competitive land markets. House prices should reflect the cost of constructing the house, financing and profit margins for the developer and the land value. The costs of construction are known, and industry practice sets parameters around financing and profit. The wild card is land values. 

Presently, land values are said to be out of whack. Land values for urban activities should not be more than competing uses, after accounting for any 'improvements'. In a greenfields situation, raw urban land values should not be much more than the value of the land for farming, for example. There will always be value added to urban land through infrastructure, earthworks, road links and the like. But if these costs are set aside, then the raw land value shouldn't be much more than what another farmer may pay for the land. If the raw value of urban land is much higher, then lots of farmers should be motivated to sell to a developer, and so prices should drop back to be closer to alternative use value through competition.

In a brownfields situation, alternative uses are a bit more complex to work out, as density can vary considerably, and there may be alternative uses such as for industry or retail.  But the same idea holds true - if one piece of land is too expensive, then there should be the ability to look elsewhere.

Planning interrupts this process of competition. By zoning some land for housing and related urban  activities, but not other land, it concentrates purchase options into smaller areas. Landowners in these areas get handed a 'free gift'. By being more flexible about how cities grow out and up, then there should be more competition and hence less ability to mark up land values.

Having enough capacity is a back door way of trying to create more competition. Lots of capacity should equal lots of development options, which should mean lots of competition between landowners to sell to a developer. Perhaps the draft urban development capacity National Policy Statement talks about 'capacity' rather than competitive land markets because capacity is the language of planning. Maybe capacity is a softer sounding word than competition. Competition implies winners and losers. It can mean mass production and limited quality, all things that home owners get worried about when looking after their prime investment. 

But the concept of competitive land markets is much more than about lots of development options. So should the NPS spell out what needs to happen to foster a more competitive land market, rather than just capacity? 

The list of things that make a competitive market seem to change, but a typical list might be:

·       there are many buyers and sellers;

·       consumers have many substitutes if the good or service they wish to buy becomes too expensive or its quality begins to fall short;

·       new firms can easily enter the market, generating additional competition;

·       there is good information and buyers and sellers have equal access to this information;

·       there are no unpriced externalities;

·       transaction costs are low.

What is interesting is how quickly people point out how imperfect land markets are compared to other types of markets, and as a result the (implied at least) need for greater structure to make land markets competitive. For example, see: http://blogs.lse.ac.uk/politicsandpolicy/why-arent-we-building-enough-homes/ 

On all the above points, land markets face some issues and difficulties:

·       there are not always many sellers, and when there are sellers, they are often in a position of some strength. Cities tend to grow along logical corridors due to infrastructure and natural features, even if planning didn't exist;

·       land isn’t exchangeable —one piece of land isn’t necessarily easily exchangeable for land elsewhere, and so favoured land will always demand a premium;

·       costs of entry into the development market (ie setting up a new development company) steadily get higher and higher due to the complexity of the subdivision and development process, need for access to finance, skills and resources and so on;

·       local externalities abound;

·       information is often not equally held. It is actually quite hard to work out what the real value of a piece of land is. Each parcel of urban land is a little bit different than any other parcel, which means urban land can always sustain a mark-up of price over cost;

·       transaction costs are high – often sites need to be aggregated or access gained to network infrastructure across neighbouring sites. Holdout bargaining drives up the cost of land for development.

What is not listed, but which I also think is important to the operation of the urban land market is the number of players involved. There are:

·       landowners

·       developers

·       financiers

·       infrastructure providers

·       buyers.

These players need a degree of co-ordination and certainty to bring a project together. Otherwise, there are too many strands to tie together. Each has different risks that they wish to mitigate or control and sub optimal outcomes are rife.

These imperfections can combine so that there is a 'first mover disadvantage' to much urban development, while change can get heavily concentrated in some areas only, to the detriment of others.

The question then becomes, how do we address these imperfections? Here the debate quickly turns to how planning gets in the way of more competitive markets. To date, the emphasis has been on speeding up planning (Special Housing Areas, specific plan preparation processes like Auckland and Christchurch). Increasingly the debate is shifting from faster planning to less planning. Moves to enable competitive processes by speedier planning at least implicitly recognised the value of planning. But speedier planning doesn't seem to have lead to more competitive markets.

The current tenor of debate is that 'less' planning is needed to create more competitive markets. Planning constrains supply, which constrains competition. So less planning is needed. In simple terms, if a developer cant find a willing seller (ie willing landowner) in one area, then they should be able to go to another area to find a seller. In simple terms this may mean:

·       in a greenfields situation, the developer can go to an area where there is less incentive for hold outs, for example leap frogging existing future development areas to a true 'greenfields’ site

·       in brownfields, being able to range across the urban area and not be constrained by density or height controls.

In other words, you might say the antithesis of the structured approach to development that planning seeks to foster.

But is it just planning that constrains choices? What about topography and bulk infrastructure networks. What happens when they concentrate development in some areas but not others?

The alternative view is that the urban land market needs a degree of structure to them that is not needed in other markets, because of the prevalent imperfections listed above. The Royal Town Planning Institute Report "Delivering the Value of Planning[1]" has some really good points on the role of planning in shaping markets.

Good planning helps to 'de-risk' development by:

·       providing some certainty to buyers over what may happen in the surrounding area;

·       giving confidence to lenders over the degree of competition that a development may face;

·       managing externalities;

·       helping to co-ordinate infrastructure; and

·       reducing transaction costs by providing a mechanism to resolve disputes between parties as to how to use resources (public and private).

In this light, planning helps to stimulate development. Perhaps more development than if there was less planning and more 'open competition', especially over the longer term. In this view, planning is not just about dealing with negative externalities, or even correcting market failure; it is more about shaping and enabling markets. In other words, it is much more positive. 

But it is a fine balance. Planning can also generate monopolistic type environments if development opportunities get concentrated in some areas, leading to 'rent seeking behaviour', while a degree of certainty and order provides fertile ground for speculative behaviour.   It is these downsides that the call for less planning seeks to address. But are there better ways to manage these issues than just say:  'less must be better'?

Certainly in other areas of the economy, the government tolerates less competitive, oligopoly type arrangements, but with controls over pricing and market reach. These arrangements are tolerated because in a small country there may be only room for a few players to operate effectively. Better a few bigger, more stable, but regulated players than lots of comings and goings of smaller players?

So what to do?

1.     Capacity and competition are important concepts to take into account in growth planning

2.     But so too is some structure and certainty

3.     Where natural features and/or bulk infrastructure networks naturally concentrate growth, by being directive planning can help to make more effective use of the land available, to support the longer term growth and development of these areas

4.     When planning concentrates growth for good reasons, then the 'side' effects of reduced competition also need to be taken into account

5.     In both cases of concentration, there may be good reason to manage the consequential effects of reduced competition. The benefits of reduced competition tend to flow into land values, and so there is a basis to look at how some of that value can be captured for public benefit and to off-set the higher costs. Planning can do that also.

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[1] http://www.rtpi.org.uk/media/1915891/rtpi_delivering_the_value_of_planning_full_report_august_2016.pdf

Feasible development, intensification and the PAUP

In my blog of the 22 August 2016 I discussed the concept of feasible development capacity. This concept features in the proposed National Policy Statement on urban development capacity and the deliberations of the independent hearings panel that considered the Proposed Auckland Unitary Plan (PAUP). I questioned the use of the concept to determine zoning envelopes, especially longer term estimates of required capacity. I acknowledge the need to consider how much of the theoretical capacity enabled by zonings may be feasible or realistic, but am unsure if 'commercially feasible development capacity' is the way to go. 

In this blog I want to look at whether the idea of commercially feasible capacity may help determine what type of zoning should be applied, if not how much zoning.

The data in Table 1 is from the Auckland independent hearing panel's report on the recommended PAUP. It shows the total plan enabled capacity by the four main residential zones used by the PAUP, and the proportion of that enabled capacity, that was deemed commercially feasible by the council's model.

Table 1: Number of dwellings

Zone	Plan enabled capacity	Estimated feasible capacity	Proportion capacity "feasible"
Single House	34,445	11,259	33%
Mixed Housing Suburban	312,627	50,966	16%
Mixed Housing Urban	297,834	53,750	18%
Terrace Housing and Apartment Building	325,648	45,929	14%
Total	970,554	161,904	17%

So, not much difference in feasibility across the zones. 

If we take the land area involved in each of the 4 zones and the number of dwellings feasible per hectare of land, we start to see the efficiency of the more intensive zones.

Table 2: Feasible dwellings per ha.

	Area (ha)	Feasible dwellings per ha
Single House	8,761	1.29
Mixed Housing Suburban	12,497	4.08
Mixed Housing Urban	8,211	6.55
Terrace Housing and Apartment Building	2,384	19.27
Total	31,853	5.08

The data gives a hint of the issues at play when considering feasibility and location.

The Single House Zone feasible capacity of 33% is actually not much different to my estimates done 20 years ago for similar types of zones(as outlined in my 22 August 2016 blog), albeit by a different methodology.  Estimating realistic capacity of zoning that involves adding a further dwelling to an existing section is not too difficult to calculate. All you need to know is the number of sections above a minimum size.

Up to about the end of the 1990s, most development in Auckland was by way of greenfields expansion and urban infill.  The infill bit was mostly adding a further dwelling to a site, and was often landowner driven, or undertaken by a development-orientated builder. However, the amount of development realised per hectare of land is not that great.

Redevelopment is now the most common form of urban intensification. This is in the sense of existing housing on a section having to be demolished, removed or shifted to accommodate new housing.  This is a more complex process than infill,  requiring more skills and 'deeper pockets'.   Suitable sites are harder to find, with many sites subject to cross-lease or unit title development. Development timeframes are longer so market ups and downs are more of a risk. The resulting product may not be affordable , for the developer or the purchaser. It is the type of development undertaken by specialists rather than 'part timers'. Access to finance is critical.  These factors are not taken into account by the feasible development model, and arguably further reduce what may be 'feasible'.

Stepping away from the Single House Zone, for the other three zones, feasible capacity drops by close to half, to be in the order of 14 to 18% of total enabled capacity.  This reflects the extra 'costs' involved and the finer balance between costs and returns. This is a fairly tight band of feasibility across the three 'intensive zones'. There is no real advantage of one zoning type over another in terms of feasibility. So in the future, could we run off some sort of 15 to 20% figure to determine how much redevelopment capacity is realistic in the short term?

The number of commercially feasible dwellings per hectare of land does vary by type of zone. But while the number of feasible dwellings per ha of land zoned terrace housing and apartments is much higher than the other zones, the pool of land is much smaller. Arguably, finding development sites will be even harder in this smaller pool.

So do we focus on making the pool of potential development opportunities as big as possible? This is a pretty simple way of looking at the issue - just make the whole pie big enough so that hopefully there will be enough to satisfy everyones needs.  Ideally there would not be  a large  gap between enabled and feasible capacity. A big gap suggests room for unintended outcomes, especially if actual development patterns do not match the estimate of feasible development capacity. Development may end up concentrated in one area, rather than nicely spread around, and make it hard for infrastructure providers to work out where to put their effort. Equally though, plenty of 'slop' in the system should enable more room for market forces.

I do think the concept of development feasibility has some validity in determining where different types of intensity should be located, and hence plans being able to better correlate enabled capacity with feasible capacity.

The graph below groups the urban Wards in Auckland into three rings: Inner, middle and outer. These rings roughly accord with the growth of the city up to the mid 20th century (inner); post war to about the 1980s (middle); and last 30 years or so (outer).  The feasibility of different house types is then grouped by these three areas. The data provided is based on the zoning set out in the recommended version of the PAUP, and so the data is not a picture of what the market would do, unencumbered by zoning controls.

Also note that the three rings are not of equal size. The middle ring is by far the largest in terms of the number of existing dwellings.

Not surprisingly in the inner ring of suburbs, it is apartments that are the most viable type of development, by a long shot. In the outer suburbs, there is more of a mix. The way that the council's model is structured may mean that it chooses low rise apartments in these areas, but in reality it is quite possible that it will be terrace housing, duplexes and town houses that will be developed.

Figure 1: Feasible dwelling types by urban location 

The heavy lifting in terms of feasible capacity is undertaken by the middle ring suburbs. Not surprising given that in Auckland's case, so much of the inner ring are heritage areas. But how much capacity needs to be enabled to get to this amount of feasible development? 

At the back of all this data is some fairly simple relationships between land values, construction costs and sale prices. As those parameters change - particularly as land values rise - then the financials of development alter and shift towards apartments away from stand alone houses, even when apartments cost more on a per square metre basis.

This can be seen when feasible capacity is compared to enabled capacity, in the three rings. Using slightly different data from that in the figure above (data based on an earlier version of the PAUP), the graph below shows the existing dwellings (at 2013), the plan enabled capacity and estimated feasible development.

Figure 2: Dwellings by Urban Location 

In the middle ring, only 10% of enable dwellings are feasible, while in the inner ring, that figure is closer to 30%.

Three things spring to mind in terms of planning principles:

1. Does feasible development tend to be scattered development, rather than concentrated development?
2.  Is density around amenity a better principle that density around transport hubs? 
3. The urban system is continually  adjusting - should zoning also be able to adjust automatically as land values alter?

The first and second questions relate to a long-held planning principle that clustered intensification around a town centre or along a transport route is the way to go. There were four main reasons for this. The first relates to the amenity issues associated with intensification - 'saving the suburbs'. Intensification should be grouped or concentrated so as to not see existing suburban fabric substantially modified. The second and third relate to the transport effects of intensification. The inevitable effect of more people is more traffic - locate the people close to shops and transport hubs and hopefully that impact is lessened as rates of walking and cycling and public transport use will be higher. The extra population close to a centre would also help with sustaining the viability of that centre. More local services means a more attractive place to live and less need for travel out of the centre. Finally, infrastructure providers (particularly Watercare) had a fair idea where infrastructure upgrades are likely to be needed. All in all, a winning sounding strategy.

But consideration of feasible development has considerably diluted this strategy.  The amount of development around nodes that is 'feasible' is less than what may have been hoped for. So to find capacity, either the nodes need to be a lot bigger, or the suburbs need to be opened up for more growth. The end result is that in its search of capacity for 30 year time frame, the PAUP has tended to spread growth across the urban area and while the intensification enabled by the Terrace Housing and Apartment Buildings zone is important for capacity, it is no longer the main source of feasible capacity. You could say that this is the major change between the notified version of the PAUP and the decisions version:  concentrated versus spread development.  This is particularly so for the middle ring suburbs.

The consideration of commercially feasible capacity also tends to push consideration of upzoning to areas of higher land values - coastal areas and inner city areas. If we take the urban Wards and look at where the highest proportion of enabled dwellings are feasible dwellings, then the four top Wards are:

 

Devonport - Takapuna	36% of enabled capacity  is feasible
Waitemata	34%
Hibiscus&Bays	26%
Orakei	20%

Amenity drives land values, which in turns drives intensification. But these areas are constrained by a number of factors (not all of which are to do with the environment), and so to get the capacity figures up, the middle ring suburbs have had to 'expand'  But the middle ring is the least efficient in terms of turning enabled development into commercially feasible development.

On the last question - things change, so should zoning - how can zoning change more easily? 'Fungible' zoning (the ability for zoning to adjust automatically) is something to look at in more detail in a later blog. 

Agglomeration benefits and Auckland: where are they?

Much has been made of the importance of Auckland's growth to the national economy and the need to find space and land for more housing and businesses to sustain Auckland's growth. As cities get bigger and more intensely developed, agglomeration benefits are supposed to flow. Productivity increases are recorded. Those benefits should be reflected in higher Gross Domestic Product (GDP) for the city.

The draft National Policy Statement on Urban Development Capacity notes:

Urban growth provides an opportunity to improve social and economic outcomes for people and communities.

One of the key methods of improving economic performance is supposed to be agglomeration benefits:

Agglomeration economies describe the productive advantages that arise from the spatial concentration of economic activity. When firms locate in close proximity to each other a number of tangible benefits are thought to emerge, for instance, in the form of increased opportunities for labour market pooling, in the sharing of ‘knowledge’ or technology, in process specialisation within the industry, or in the efficiency of input-output sharing (1).

A number of folk have pointed out that Auckland's recent growth has not seen a significant rise in per capita GDP, which suggests limited or no productivity gains, which in turn may imply not much agglomeration going on. See for example:

 https://croakingcassandra.com/2016/04/12/big-agglomeration-gains-in-a-growing-auckland-or-not/

Figure 1 shows the change in per capita GDP by region, between 2000 and 2015, based on Statistics NZ data.

Figure 1: Change in GDP per Capita, 2000 to 2015

Based on the Statistics NZ data, between 2000 and 2015, Auckland has recorded per capita GDP growth the same as the national average. This means that if anything, Auckland has gone backwards. In 2000, Auckland's per capita GDP was $33,958, compared to a national average of $29,421. Thus Auckland was about 16% ahead of the national figure. Move more people to Auckland, and their income should go up and the country's GDP should go up too!

By 2015, the Auckland figure has increased to $56,997, a 68% increase. But per capita GDP for NZ as a whole has increased by 80%, to $52,953. The Auckland premium is now just 8%, hardly enough to justify the higher house prices.

Figure 2 shows the relationship between Auckland's per capita GDP and NZ's per captia GDP. There is quite a distinct shift in the relationship post the 2008/09 global financial crises.

Figure 2: Auckland's GDP per capita as proportion of NZ per capita GDP, 2000 to 2015

Given that since 2000 Auckland region's population has grown from 1.2 million to close to 1.6 million (a 400,000 increase) while between 2001 and 2015, regional employment has also grown by 33%, or 175,000 jobs, then there must be question mark as to whether any agglomeration benefits are being experienced.

Are there any urban form reasons for this limited response?  Agglomeration is an 'urban thing' . During the period in question, the compact city policy was in vogue (well apparently according to most commentators). Not much urban land got added to the pie. In theory at least, some form of employment intensification should have helped agglomeration along, since agglomeration benefits come from some types of employment (such as business and finance) being proximate. But maybe Auckland just got bigger, rather than more 'agglomerated'.

Certainly the evidence is that the central Isthmus area,  where agglomeration benefits are likely to be the strongest, saw some of the employment growth, but far from all. The following table lists growth in jobs by Ward, between 2001 and 2015. I have highlighted the Wards that have recorded the most growth. There are three distinct 'nodes' - Albany; the central area; and the Penrose to Manukau corridor.

Ward	Employment growth 2001 to 2015 (people employed)
Rodney	3,350
Albany	26,180
Waitakere	7,650
North Shore	6,550
Whau	2,790
Waitemata & gulf	39,990
Albert Eden Roskill	7,030
Orakei	3,020
Maungakiekie-Tamaki	18,510
Howick	18,960
Manukau	20,850
Manurewa-Papakura	10,340
Franklin	3,050

These nodes tend to reflect the geography of the region and the strong north-south axis established by State Highway 1 running through the middle of the region. They also reflect a degree of sub regional sorting.

Some questions arise.

At a national level, does it make sense to continue to reinforce Auckland as a 'growth pole' when it looks like the per capita GDP of people residing in Auckland hasn't grown as much as hoped? But then maybe without the growth, per capita GDP may have go down? Perhaps. Something for Stephen Joyce to contemplate.

Or is Auckland GDP growth being held back in some way? Would per capita GDP have been higher if more businesses had been able to clump together if the regional land use and transport system enabled this? Possibly. The central rail link and continuing upgrades of the rail system should help reinforce the centre. Maybe earlier central government support for the rail link may have helped. Maybe more liberal zonings around the fringe of the CBD.

Or is Auckland just a bit different? More than likely. If anything, the GDP figures suggest to me that Auckland needs careful planning. It is not a rich city, so we need to think carefully about changes and choices. It is a geographically diverse city, so we need to think of the sub regions. It is city where just 'adding things' doesn't seem to help improve the overall situation. If anything the GDP figures suggest a slip towards a service-based economy away from a productive, export focused economy. Is liveability more important than agglomeration?


Others have pointed out that rather than rely upon hoped for agglomeration processes, we need to look more at clusters and the like. Philip McCann in his often quoted report: Geography, Trade and Growth: Problems and Possibilities for the New Zealand Economy(2) noted that while traditional urban agglomeration theories may not hold, there may be ability "to generate some local agglomeration economies in a small number of specific specialist sectors, usually described as ‘localisation’ economies".

He goes on to say that rather than promote agglomeration, we need to promote social networks and interaction:

"New Zealand has both a highly educated labour force and low population level. Potentially, this combination provides for a much higher level of inter-personal connectedness than is possible in high population societies where individuals are largely anonymous. This can allow local economic growth to be fostered via slightly different mechanisms than orthodox agglomeration arguments would imply. In particular, as an analytical and policy framework, we have argued here that the social network model is more applicable to New Zealand’s growth potential than is the agglomeration model".

What role should planning play?

Interestingly, when it comes to economic growth and business land, the Independent Hearings Panel that considered the Proposed Auckland Unitary Plan took quite a different tack to that of its work on housing.  The Panel organised for a report on business land needs to be prepared. In its overview report the Panel notes that "while the (business land) report indicates there is sufficient commercial and industrial capacity in the region for the next seven years (and the Panel’s recommendations add to that capacity), the Panel is cautious about drawing definitive conclusions from this report for the longer term".  So for housing the Panel looks out 30 years using a wide angle, high definition pair of binoculars (base the plan on a high growth projection and get very picky about capacity having to be commercially feasible), but for business and employment, it says "lets see how things go and adjust if need be".

In a review for the Ministry of the Environment, of  planning for business activities (2)  the economic consultancy BERL noted that across the country:

"The conclusion reached is that the overall supply of business land is generally sufficient, and in some areas it is likely that there is an oversupply. In these areas, an oversupply of some types of business land is contributing to a “hollowing out” of the town centre and/or an under-utilisation of infrastructure as development has not eventuated".

For Auckland the review indicated the need for more space for land extensive business activities, a view shared by the council and most others. But further on, the report cautions against addressing this through adopting a simple approach of 'more business land'

"Again, it is pertinent to note that this market-driven change in land use may be appropriate in assisting urban transformation. However, there may be cases where a narrow range of economic activity becoming established results in an unsustainable economic profile in an area".

So, in a round about way, the question of Auckland's per capita growth brings me back to the issues raised in my last blog about the rationale for planning. Is planning just good house keeping, or are there bigger benefits?

Setting aside the issue of GDP not really capturing all the good things about living in Auckland (with planning helping to secure many of these 'non-GDP' good things that help sustain social networks) would more or less planning aid Auckland's per capita GDP growth? Just focus on the spill-overs, or take a wider look?



(1) Agglomeration elasticities in New Zealand. David C. Maré Motu Economic and Public Policy Research Trust Daniel J. Graham Centre for Transport Studies, Imperial College, London

(2) Geography, Trade and Growth: Problems and Possibilities for the New Zealand Economy. New Zealand Treasury Working Paper 03/03. Author: Philip McCann.

(3) Business land: Problems and causes. Research to support a proposed NPS on urban planning. April 2016.  www.berl.co.nz

Market failure is more than just spillovers

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.