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Economics and Land Use Planning: Insights from Britain

Blog Entry No. 4
October 24, 2016

Why costs as well as benefits must be considered when formulating or evaluating land use planning policy

This is the fourth in a series of five blog entries showcasing insights and recommendations via excerpts from the 2014 book Urban Economics and Urban Policy: Challenging Conventional Policy Wisdom authored by Paul C. Cheshire, Max Nathan and Henry G. Overman. This entry focuses on the need to consider and quantify economic costs beyond the negative impacts on housing affordability when formulating or evaluating a land use planning system.

  • “The ultimate role of planning is to help promote a balance of environmental, social and economic welfare that meets the needs of current and future generations and offsets the endemic problems of market failure in the use of land. Doing so inevitably involves trade-offs, so any planning system has both benefits and costs." (p. 104) 

  • "To summarise, there is evidence that planning or zoning systems that restrict the supply of land or built space have significant economic costs which need to be balanced against any environmental or social benefits. This is a problem recognised in an increasing number of countries. But the UK system is at an extreme in terms of costs it imposes. This is partly because it has been in place so long - effectively since 1947 - but also because it is particularly dirigiste." (p. 122)

  • "The benefits claimed for the British system have been well-discussed in recent popular debate. Internationally and in other countries there have been equally strong assertions of the value of planning to combat, for example, 'urban sprawl', and to promote sustainable cities and the 'new urbanism'." (p. 104)

  • "We do not rehearse these arguments in detail, although we return to them briefly in our conclusions. Rather, we focus on whether the current system, especially the British system, imposes costs that future reforms could mitigate or avoid." (p. 104)

  • "The costs fall into two categories: direct and indirect. The direct costs arise from three sources: (1) simply from foregone incomes and employment in construction; (2) from the application of a highly and increasingly complex system of regulation; but most importantly perhaps from (3) the costs falling on the private sector in order to comply with the system." (p. 104-105)

  • "The indirect costs arise from the higher costs of space brought about by the constraint on its supply, and the controls imposed on the choice of location. These force activity to locate on sites that are often non-optimal from the point of view of operating costs or revenue generation. Household choices are similarly constrained." (p. 105)

  • "The available evidence suggests that both these categories of costs are substantial, although the indirect costs are greater than the direct ones. In particular, the evidence we discuss below demonstrates that in Britain - particularly in England - the planning system substantially increases the costs of office space and also very significantly reduces output in the retail sector." (p. 105) 

  • "It is perfectly possible to argue that the costs we identify are worth paying to achieve other policy objectives. However, it is not helpful to pretend these costs do not exist. There are multiple links from planning to the economy, and any sensible and balanced debate on urban planning (in general) and on planning reform (in particular) must recognise this." (p. 105)