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The Introduction of Price Signals into Land Use Planning

Author

Listed:
  • 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.

Suggested Citation

  • Paul Cheshire & Stephen Sheppard, 2004. "The Introduction of Price Signals into Land Use Planning," Urban/Regional 0410002, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpur:0410002
    Note: Type of Document - pdf; pages: 20
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/urb/papers/0410/0410002.pdf
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    References listed on IDEAS

    as
    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. 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.
    5. 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.
    6. Sheppard, Stephen, 1988. "The qualitative economics of development control," Journal of Urban Economics, Elsevier, vol. 24(3), pages 310-330, November.
    7. 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.
    8. 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.
    9. 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.
    10. 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..
    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 247-267, May.
    12. 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.
    13. Titman, Sheridan, 1985. "Urban Land Prices under Uncertainty," American Economic Review, American Economic Association, vol. 75(3), pages 505-514, June.
    14. 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.
    15. Paul Cheshire & Stephen Sheppard, 1997. "Welfare Economics of Land Use Regulation," Urban/Regional 9702001, University Library of Munich, Germany.
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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. Heather Campbell & John Henneberry, 2005. "Planning obligations, the market orientation of planning and planning professionalism," Journal of Property Research, Taylor & Francis Journals, vol. 22(1), pages 37-59, September.
    5. Paul Metzemakers & Erik Louw, 2005. "Land as production factor," ERSA conference papers ersa05p220, European Regional Science Association.

    More about this item

    Keywords

    regulation; zoning; land use; housing supply;

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • H4 - Public Economics - - Publicly Provided Goods
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics

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