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Introducing Price Signals into Land Use Planning Decision-making - a Proposal

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  • Paul Cheshire

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  • Stephen Sheppard

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Abstract

Although directed to the British system of land use planning this paper has relevance for many OECD countries. The paper starts by characterising the basic features of planning systems which seek to impose 'growth boundaries' as has been the case in Britain since 1947. In contrast to the planning literature this analyses such policies as an issue of resource allocation. A conclusion is that the system explicitly excludes any use of price signals from its decisions and effectively determines the supply of land for any use by fiat. Cumulatively over time the result has been to generate major distortions in land market prices. Because the 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 way of including the information embodied in the price premiums of neighbouring parcels of land zoned for different uses in determining land supply while safeguarding the underlying purposes of land use regulation. Such premiums signal the relative scarcity of land for different uses at each location and should become a key element 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

  • Paul Cheshire & Stephen Sheppard, 2005. "Introducing Price Signals into Land Use Planning Decision-making - a Proposal," ERSA conference papers ersa05p42, European Regional Science Association.
  • Handle: RePEc:wiw:wiwrsa:ersa05p42
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    File URL: http://www-sre.wu.ac.at/ersa/ersaconfs/ersa05/papers/42.pdf
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    References listed on IDEAS

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    1. 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.
    2. Sheppard, Stephen, 1999. "Hedonic analysis of housing markets," Handbook of Regional and Urban Economics,in: P. C. Cheshire & E. S. Mills (ed.), Handbook of Regional and Urban Economics, edition 1, volume 3, chapter 41, pages 1595-1635 Elsevier.
    3. Capozza, Dennis R. & Helsley, Robert W., 1990. "The stochastic city," Journal of Urban Economics, Elsevier, vol. 28(2), pages 187-203, September.
    4. Cheshire, Paul & Sheppard, Stephen, 1998. "Estimating the Demand for Housing, Land, and Neighbourhood Characteristics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 60(3), pages 357-382, August.
    5. 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.
    6. 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.
    7. Sheppard, Stephen, 1988. "The qualitative economics of development control," Journal of Urban Economics, Elsevier, vol. 24(3), pages 310-330, November.
    8. 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.
    9. 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.
    10. 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.
    11. 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..
    12. 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 247-267, May.
    13. 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.
    14. Titman, Sheridan, 1985. "Urban Land Prices under Uncertainty," American Economic Review, American Economic Association, vol. 75(3), pages 505-514, June.
    15. Cheshire, Paul & Sheppard, Stephen, 2004. "Land markets and land market regulation: progress towards understanding," Regional Science and Urban Economics, Elsevier, vol. 34(6), pages 619-637, November.
    16. Paul Cheshire & Stephen Sheppard, 1997. "Welfare Economics of Land Use Regulation," Urban/Regional 9702001, EconWPA.
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    Citations

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    Cited by:

    1. 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.
    2. Paul Cheshire, 2009. "Urban Containment, Housing Affordability and Price Stability - Irreconcilable Goals," SERC Policy Papers 004, Spatial Economics Research Centre, LSE.
    3. Nathan, Max & Overman, Henry G., 2011. "What we know (and don't know) about the links between planning and economic performance," LSE Research Online Documents on Economics 59232, London School of Economics and Political Science, LSE Library.
    4. Nicholas Crafts, 2013. "Returning to Growth: Policy Lessons from History," Fiscal Studies, Institute for Fiscal Studies, vol. 34(2), pages 255-282, June.
    5. 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.
    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. 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.
    8. 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.
    9. 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.
    10. 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.
    11. ., 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.
    12. ., 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.

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