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The Introduction of Price Signals into Land Use Planning

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Author Info

  • Paul Cheshire

    (London School of Economics)

  • Stephen Sheppard

    (Williams College)

Abstract

Although directed to the British system of Town and Country Planning this paper has relevance for many OECD countries, including some with systems of land use regulation which evolved entirely independently of the British. The paper starts by characterising the basic features of the British land use planning system, viewed from the resource allocation point of view of an economist. A conclusion is that the system explicitly excludes any use of price signals from its decisions. The paper then summarises the problems which the exclusion of price information has given rise to. Because the UK planning system has deliberately constrained the supply of space, and space is an attribute of housing which is income elastic in demand, rising incomes not only drive rising real house prices but also mean that land prices have risen considerably faster than house prices. Several housing attributes other than garden space are to a degree substitutes for land but the underlying cause of the inelastic supply of housing in the UK is the constraint on land supply. The final section proposes a mechanism which would make use of the information embodied in the price premiums of neighbouring parcels of land zoned for different uses. Such premiums signal the relative scarcity of land for different uses at each location and should become a ‘material consideration’ in planning decision- making. If they were above some threshold, this should provide a presumption of development unless maintaining the land in its current use could be shown to be in the public interest. If combined with Impact Fees, such a change would not only make housing supply more elastic and the system more transparent but would help to distance land availability decisions from the political process.

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File URL: http://128.118.178.162/eps/urb/papers/0410/0410002.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Urban/Regional with number 0410002.

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Length: 20 pages
Date of creation: 05 Oct 2004
Date of revision:
Handle: RePEc:wpa:wuwpur:0410002

Note: Type of Document - pdf; pages: 20
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Web page: http://128.118.178.162

Related research

Keywords: regulation; zoning; land use; housing supply;

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References

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  1. Titman, Sheridan, 1985. "Urban Land Prices under Uncertainty," American Economic Review, American Economic Association, vol. 75(3), pages 505-14, June.
  2. Stephen Sheppard, 1998. "Hedonic Analysis of Housing Markets," Urban/Regional 9805001, EconWPA.
  3. P. C. Cheshire & Stephen Charles Sheppard, 2004. "Land markets and land market regulation : progress towards understanding," LSE Research Online Documents on Economics 566, London School of Economics and Political Science, LSE Library.
  4. Ihlanfeldt, Keith R. & Shaughnessy, Timothy M., 2004. "An empirical investigation of the effects of impact fees on housing and land markets," Regional Science and Urban Economics, Elsevier, vol. 34(6), pages 639-661, November.
  5. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
  6. Gyourko, Joseph & Tracy, Joseph, 1991. "The Structure of Local Public Finance and the Quality of Life," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 774-806, August.
  7. Capozza, Dennis R. & Helsley, Robert W., 1990. "The stochastic city," Journal of Urban Economics, Elsevier, vol. 28(2), pages 187-203, September.
  8. Song, Yan & Knaap, Gerrit-Jan, 2003. "New urbanism and housing values: a disaggregate assessment," Journal of Urban Economics, Elsevier, vol. 54(2), pages 218-238, September.
  9. Elena G. Irwin, 2002. "Interacting agents, spatial externalities and the evolution of residential land use patterns," Journal of Economic Geography, Oxford University Press, vol. 2(1), pages 31-54, January.
  10. Mayo, Stephen & Sheppard, Stephen, 2001. "Housing Supply and the Effects of Stochastic Development Control," Journal of Housing Economics, Elsevier, vol. 10(2), pages 109-128, June.
  11. Cheshire, Paul & Sheppard, Stephen, 1995. "On the Price of Land and the Value of Amenities," Economica, London School of Economics and Political Science, vol. 62(246), pages 247-67, May.
  12. Elena G. Irwin, 2002. "The Effects of Open Space on Residential Property Values," Land Economics, University of Wisconsin Press, vol. 78(4), pages 465-480.
  13. Sheppard, Stephen, 1988. "The qualitative economics of development control," Journal of Urban Economics, Elsevier, vol. 24(3), pages 310-330, November.
  14. Paul Cheshire & Stephen Sheppard, 1997. "Welfare Economics of Land Use Regulation," Urban/Regional 9702001, EconWPA.
  15. Capozza, Dennis R. & Helsley, Robert W., 1989. "The fundamentals of land prices and urban growth," Journal of Urban Economics, Elsevier, vol. 26(3), pages 295-306, November.
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Citations

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Cited by:
  1. Paul Cheshire & Christian A.L. Hilber, 2007. "Office space supply restrictions in Britain: the political economy of market revenge," LSE Research Online Documents on Economics 3203, London School of Economics and Political Science, LSE Library.
  2. Mariano Kulish & Anthony Richards & Christian Gillitzer, 2011. "Urban Structure and Housing Prices: Some Evidence from Australian Cities," RBA Research Discussion Papers rdp2011-03, Reserve Bank of Australia.
  3. Paul Metzemakers & Erik Louw, 2005. "Land as production factor," ERSA conference papers ersa05p220, European Regional Science Association.
  4. Michael Ball & Phil Allmendinger & Cathy Hughes, 2008. "Housing Supply and Planning Delay in the South of England," Real Estate & Planning Working Papers rep-wp2008-04, Henley Business School, Reading University.

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