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The introduction of price signals into land use planning decision-making : a proposal

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  • Cheshire, P. C.
  • Sheppard, Stephen Charles

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.

Suggested Citation

  • Cheshire, P. C. & Sheppard, Stephen Charles, 2005. "The introduction of price signals into land use planning decision-making : a proposal," LSE Research Online Documents on Economics 568, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:568
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    File URL: http://eprints.lse.ac.uk/568/
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Nicholas Crafts, 2013. "Returning to Growth: Policy Lessons from History," Fiscal Studies, Institute for Fiscal Studies, vol. 34(2), pages 255-282, June.
    2. Cai, Hongbin & Wang, Zhi & Zhang, Qinghua, 2017. "To build above the limit? Implementation of land use regulations in urban China," Journal of Urban Economics, Elsevier, vol. 98(C), pages 223-233.
    3. Zhang, Wenjia & Kockelman, Kara M., 2016. "Optimal policies in cities with congestion and agglomeration externalities: Congestion tolls, labor subsidies, and place-based strategies," Journal of Urban Economics, Elsevier, vol. 95(C), pages 64-86.
    4. Cheshire, Paul, 2009. "Urban containment, housing affordability and price stability - irreconcilable goals," LSE Research Online Documents on Economics 59240, London School of Economics and Political Science, LSE Library.
    5. ., 2014. "Planning for a housing crisis: or the alchemy by which we turn houses into gold," Chapters,in: Urban Economics and Urban Policy, chapter 4, pages 79-103 Edward Elgar Publishing.
    6. Crafts, Nicholas, 2012. "Creating Competitive Advantage: Policy Lessons from History," CAGE Online Working Paper Series 91, Competitive Advantage in the Global Economy (CAGE).
    7. Cheshire, Paul, 2009. "Urban land markets and policy failures," LSE Research Online Documents on Economics 30837, London School of Economics and Political Science, LSE Library.
    8. Paul C. Cheshire & Christian A.L. Hilber, 2008. "Office Space Supply Restrictions in Britain: The Political Economy of Market Revenge," Economic Journal, Royal Economic Society, vol. 118(529), pages 185-221, June.
    9. Mariano Kulish & Anthony Richards & Christian Gillitzer, 2012. "Urban Structure and Housing Prices: Some Evidence from Australian Cities," The Economic Record, The Economic Society of Australia, vol. 88(282), pages 303-322, September.
    10. repec:eee:pubeco:v:158:y:2018:i:c:p:126-151 is not listed on IDEAS
    11. Paul Cheshire & Gerard Dericks, 2014. "'Iconic Design' as Deadweight Loss: Rent Acquisition by Design in the Constrained London Office Market," SERC Discussion Papers 0154, Spatial Economics Research Centre, LSE.
    12. Paul Metzemakers & Erik Louw, 2005. "Land as production factor," ERSA conference papers ersa05p220, European Regional Science Association.
    13. Paul Cheshire, 2008. "Reflections on the nature and policy implications of planning restrictions on housing supply. Discussion of 'Planning policy, planning practice, and housing supply' by Kate Barker," Oxford Review of Economic Policy, Oxford University Press, vol. 24(1), pages 50-58, spring.
    14. Max Nathan & Henry G. Overman, 2011. "What We Know (and Don't Know) About the Links between Planning and Economic Performance," SERC Policy Papers 010, Spatial Economics Research Centre, LSE.
    15. Balz R. Bodenmann & Breogan Sanchez & Alexandra Zeiler & Milan Kuliowsky & Peter Furtak & Georgios Sarlas, 2014. "Planning For The Future: A Land-Use And Transport Interaction Model For Switzerland," ERSA conference papers ersa14p1130, European Regional Science Association.
    16. Ali Turel, 2012. "High housing production under less regulated market conditions in Turkey," ERES eres2012_210, European Real Estate Society (ERES).
    17. Hilber, Christian A.L. & Schöni, Olivier, 2016. "Housing policies in the United Kingdom, Switzerland, and the United States: lessons learned," LSE Research Online Documents on Economics 72818, London School of Economics and Political Science, LSE Library.
    18. ., 2014. "Planning: reforms that might work and ones that won't," Chapters,in: Urban Economics and Urban Policy, chapter 6, pages 127-154 Edward Elgar Publishing.
    19. 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.
    20. Max Nathan & Henry G. Overman, 2011. "Assessing the Government's Proposals to Reform the UK Planning System," SERC Policy Papers 011, Spatial Economics Research Centre, LSE.
    21. Floater, Graham & Rode, Philipp & Friedel, Bruno & Robert, Alexis, 2014. "Steering urban growth: governance, policy and finance," LSE Research Online Documents on Economics 60776, London School of Economics and Political Science, LSE Library.

    More about this item

    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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