Urban Land Economics Ch11

8/8/2019 Urban Land Economics Ch11

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11MANAGING RBAN

LANDRESOURCES:LAND-USECONTROLS NDLANDPOLICY

AN INTRODUCTORYNVENTORYFISSUES NDAPPROACHES'fhere are th_reegenerally accepted reasons or intervening into thef unctioning free markets.

l. 'l-he elimination of irnperfections o as t() enable the markets to work more effi-ciently and thus alloca te scarce resources bett.er than previously.2. Accountingfor externalitias o that private and social costs and benefits can bebrought into closer correspondence.3. Redistribuling he scarceesources f'society so that the disadvantaged are providedwith a greater opportunity to share in society'soutput.

The first two objectives of intervention seek to effect allocationalffi-ciency, while the third objective seeks to create distributional equity.Traditionally, economists have been reasonably effective on the alloca-tion front, but have fared rather poorly on distributional issues.When transposing these rather general objectivesof governmentinvolvement in th e marketplace into the realm of urban land markets,one of these objectivescomes o the fore: the control of externalities.Asecondary objective has been the removal of imperfections, particu-larly in urban housi ng markets, a subject o be treated in the next chap-ter. Redistribution of income or resources,however. is not seenas an302

explitionaWmarkcontawill tmostcontnot oof thextepartiindliteraourservstratintomanminihavevano

Lanearlclusjacethesigntrolzonexteterproagasideof t. . .nesciV


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ManagingUrbanLand Resources 303

URBANAND

ANDinto the

more effi_

ca n be

are provided

effi-,qiity.rhe alloci-issues.

markets,Apart icu-ext chap-seenas an

explicit goal of urban land policy, though rhere are significantdistribu-tional effects of urban land managem-ent policies. ",w e will.begin ou r analysiswith the exteinality issues n urban landmarkets and focus on the urban land policies designed to minimize orcontain the off-site effects of various urban land-"usingactivities. wewill then turn ou r attention to imperfections in urban"land markets,most notably with respect to issuei of monopolistic and oligopolisticcontrol of urban land resourcesan d the role oi land speculato"rr. hit.no t of direct concern, distributional issueswill arise as we review someof the work on zoning an d other land-use controls intended to controlexternalities, bu t shown to have significant redistributional impacts.we will draw on the tools of analysisse t out in part 2 of this text,particularly.those.microeconomic toois discussecln chapters 4, 5, 9,and l0 dealing with markets. we will make frequent reference to theliterature to draw some empirically based conclusions to complementou r theoretical and concept;al conclusionsas to the predicted'and ob -served eff-ects of various urban land -unog"rlrl,-,t policies andstrategies.. Finally, we c


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304 Contemporaryssues f Urbanand conomicsHere the issuewas usersmore than usesof urban land. The ordinancewas a blatant attempt to exclude Chinese from living and carrying ou ttheir businesses n certain portions of the city. As such, the Modestoordinance was a precursor of similar land-use controls that have servedas thinly veiled efforts to exclude the poor, blacks,and other minoritygroups and which have proliferated since World War II .Modesto therefore provides one source of tradition, that of so-called exclusionary zoning aimed at excluding certain groups in the be-lief that the presence of these groups will have detrimental effects onproperty values.However, the more prevalent theme in zoning, that ofexcluding uses ather than users, s the secondstep n the hierarchy oflimiting property rights asset out in Chapter 8 and can be traced to theNew York City landmark zoning bylaw of 1916,an effort spearheadedby merchants and owners of fashionable properties along Fifth Ave-nue to prevent the spread of the garment industry up thatthoroughfare.Nothingso blasting o the bestclassof businessand property nterestshas everbeen seen or known n any great retaildistrict n any largecity as this vast loodof workerswhich sweepsdownthe pavementsat noontimeevery day and liter-ally overwhelms nd engulfsshops,shopkeepers nd the shoppingpublic.3Such concerns by property owners and rnerchants ed the city of NewYork to f


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Managingrban and esources 305One immediate manifestation of the legal differences betweenCanadaand the United States s the absence, n the former, of pro-tracted itigation by private interesrschallenging the provincial and lo-cal government 's regulat ion of the uses of urbanland. This is inmarkedcontrast with the Unitecl States,where almost every attempt toregulate and use ancl urban development has been met with courtchal lenges. 'Tohighl ight this poinr, we have only ro look at the lg50AlbertaTown and Rural Planning Act, c loselymodeled on the 1947Town and Country Planning Act of ' the United Kingdom. These actsseparatedhe notion of devekrprnent rights f rom ownership and use,andstated hat clevelopment riehts were the purview of'the Crown an dthat the right to develop or redevekrp land or buildings does nor gowith he lan


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306 Contemporaryssues f Urban andEconomicsDrocesswassignificantlymore efficientand equitable-than-previous[il;h "p;;"u?tr.r,' since he Canadianschemes

'erebasedon bilat-;i ne$dtiations rarher than arbitrary bureaucratic rules andprocedures."t' " nif..rive November 1979, and-usecontractswere replaced nBritish columbia with a more complicatedsystemof developmentJuin., intended ro curb documentedabuses y som-emunicipalities;il?;r; r.." uy the development omnmun^itys."blackmailing"e-veloperswith excessiveemands'uWhile the form haschanged.underil;[;; tt;;.;, rhe principle remainsunchanged:To minimize thei-porlt i"r i of externil i t ies'oncommunity.members,he community-t"I in . right to recapruresomeof the gains hat result from publicaction.rt)Land-use contracts have their roots in the deuelopmentermitsystemoioneered by the city of Vancouver n 1956'The develop. ent pelTltIi;;; il -,i,in. -cLurio' of com.prehcnsiueeu-el.opmentistrirts. hichhave sprung up ln most Canadian cities an d in many U'S' centralareas. , ,These comprehensivedevelopment distr icts are funct ional lyu.r , r r l .d areas.Thly are areaswhere broad planning.guidel ines e-place use, density, trilt , und other restrictions.-Control n such casess!""..ir.a through the development permit process.Development can-,.ot tu t " place intil a developmeni permif is issued. Issuance is de-pendent ,p,r.r -..,ing the criteria oi rhe guidelines, n'hich.are muchmore flexible and more subject to bureaucratlc lnterpretatlon.Other conrrols a.td poliJieshave been usedbyprovincial and localsovernments in Canadu'to .rrr,rr. that external efiects of urban land3;;;;; ;;u"l"p-.", ar e kept to a minimum. In British Columbia theHealth Ac t forbids the use of septic anks in developments of less han5-acre lots in and around urban areas.All lots of less han 5 acres nthese areas must be serviced by sanitary sewers'-- - e.itrups the most elaborate'sy^stemf controls in North America isar work in bntario. A hierarchy oTcontrols is provided fo r by local mu-nicipal i t ies, egional governments for most of the urban areasand al l; i t ; f , ; ; r t ; , r 'bun arEas),he Ontar io IUunicipalBoard, and f inal ly therrrovinciaTcabinier.,2A iomplex process of fullic hearings,.upp..uJl';; ; ;;;i;*i is provided for, with ihe objectivbo.f protecting the publicinterest and regulating urban land us e and develoPment: ^A majorouerhu.rl of the"system"hasus t been completed with the 1983 passageof the Ontario Planning Act.''- itr. foregoing rep"resent the major. controlling mechanisms atwork in Canadian"rrrbin areas.Largely absent ar e many of the more.o-pti.u,.d controis existing in.tnJUhited States,suctr as water an dsewer moratorla, fiscal and"exclusionary zoning' and environmentalimpact statements, since more direct controls can be applied morereadilv in Canada.

A vementdecafromsougpricizoneprlcrIattethe SComdetaZoniandtivedustvisiovers

l . 2.3.4.5 .

6.t .8 .9.

10.I l.A bzonbeyPladucPUove


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previouson bilat-ules an d

in

de-nderthepublicsystempermit

-whichcentralre -cases scan-s de-e much

ocallandtheless ha nacres nismu-and al ltheappeals,e publicA majorpassage

ate moreand

more

Managing rban andResources 307Recent U.S. nnovationsA verirable explosion in land use, urban development, and environ-mental controls ha.s aken place- n the United siates during the pastdecade. we focus here on. regulations that seek to protect itt. p,iuti.from externalities, reserving fo r the next section those thai havesought to improve market efficiency and overcome th e improperpricing of certain land resourcessuch as shoreline, unique e.o'logicalzones, farmland, and historic buildings and sites. This impr6perpricing arises from differentials between private and social cost, ihelatter including externalities. with the issuince and rapid adoption ofthe Standard state zoning Enabling Act by the U.S.'Department ofcommerce in rg24 an d the Euclid v.Ambler decision (seeciapter g fo rdetails),zoning bylaws spread rapidly throughout the unitei srates.',Zoning controls havebeen suppl-ementedb/ a range of federal, state,a.nd ocal policies a-nd aws intended ro furrher limit"the effects of nega-tive externalities deriving generally from continued urbanization, Tn-dustrialization, and growth.

. . Beginning with elaborarionsof the locallybasedzoning and subdi-vision ordinance, we have the following extensions,elaboiations, per-versions,etc.l . Planned Unit Developments (pUDs)2. Fiscalzoning3. Exclusionary zoning4. Perlormance zoning5. Incentive zoning6. Floating zoning7. Time zoning8. Water, sewage, and site service moratoria9. Building permit and related growth restricrions

10. Official mapsll . Subdivision conrrolsA brief look at each will serve to illustrate us t how much the standardzoning.congep!!a.r been developed during the past 60 years,often wellbeyond its initial intent.PlannedUnit Developments PUDs)is PUD's are an attempt to intro-du-cc lexibility.and- creativity into the traditional zoning framework. APU D allows a developer ro cluster buildings and averale ou t densitiesover an entire project. It is closely related ro the iverage-density


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308 Contemporaryssuesf Urban and conomicszoning, cluster zoning, and comprehensivedevelopment zoning con-cepts. Developers can mix uses,building types,and densitiesas ong asthey comply with broad overall density and use concepts.Fiscal Zoningl. This is an application of zoning to achieve fiscal,rather than land-use and externality-minimizing, objectives. Fiscalzoning seeks o bar land uses hat place burdenr J.r loc"al overnmenlexpenditures, typically, multifamily housing. Their residents are seenas lower-income families requiring social, educational, and recrea-tional services.Fiscal zoning typically leads to the overzoning of landfor light industry such as research and developmenr parks and forhigh-quality office space, high tax revenue producers with low de -mands on the public purse.Exclusionary Zoning" L,xclusionary zoning returns ro the l88bModesto ordinance by attempring to excluddcertain types of land useand, by extension, and users. t is often closely elated 1o fiscal zoningin appearance, but with exclusionary rather than fiscalobjectives.Theclassic orm of such zoning is so-cal led arge ot zoning where l-, 2- , oreven 4- or 5-acre minima are established or single-family lots. Suchlarge lot requirements, frequently coupled with large minimum-sizehouse requirements fo r these lots, is effective at excluding lower-income (and often nonwhite) households from the municipality. Thistype of zoning seeks to minimize the perceived negative externalitythat derives from having people of different races,cultures, or incomegroups living in proximity to each other. It hasbeen frequently, vigor-ously, and most often successfullychallenged in the U.S. courts.r,PerformanceZoning'e 'fhis and floating zoning ar e the most subtle,flexible, and innovative elaborationsof zoning. Becauseof their subtle-ness and flexibility, they are ofren difficult ro formulare adequately inan acceptableordinance and, as a result, actual experience with per-formance zoning is somewhat limited. Rather than regulating landuses and intensities, as does traditional zoning, performance ioningseeks o isolate characteristicsof various land-use activities hat causenegative externalities and to regulate these characteristics.Fo r exam-ple, density in and of itself need not be a problem if there is adequatetransportation, water, and sewage apacity.Performance zoning wouldseek to.impose limits in different zones on rhe traffic and iewage-generating capacitiesof various uses, nsteadof on the uses hemselves.Thus, a high-rise office building adjacent ro a subway srarion ma yprove to be no problem to traffic, yer rhe same building placed in thesuburbs or on streets with no subway might cause significant trafficproblems.

Incentiveseeks touse charaovercomenegativeand evenugly buitempts toopen spato develoa most imconceptFloatingcial planvariouszoning obut doeboundarmixed-inas well aand shovelopermunitylished tocloselyament zoTime Zodemandgrowingt ional zSuch timbe consclassicaYork, wthroughservlclnF igSaskatof zonizoninghigh risuses. A


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as

r

5e

r

Managing rban andResources 309Incentiveloningm whereas traditional zoning is purely negative andseeks o eliminate negative externalities throirgh'reguiatin"g uses (o ruse haracteristics, s n performance zoning), iicenti"ve rorirg triestoovercome his.by acknowledging that exteinalities ca n be po"sitiveornegative.Traditional zoning, bltoo tightly regulating uses,densities,and even. .uilding materials, often leadl to.teiil", unimaginative, andugly building.s, clearly.a negative exrernality. IncentivE zoning at -tempts to build on positive aspecrsof built-form such as plazas"andope_npaces,andscaping, and artwork by giving bonusesoiincentivesto developels fo1 incl,ding such positiu"'"Ie-eits. Ne w york city hasa most maginative scheme ha t has servedasa successfulmodel of theconceptand how it can be implemented.?lFloatingZoning 'rraditional zonin_g s implemented through an offi-cial.plan an d a corresponding official roning ma p that dElimits th evarious land-use zones permissible under thle official plan and thezoning ordinance. Floating.zoning builds directly on th i official planbu t does nu specify disiricts of land us e wit ir precisely rp..ifi.dboundaries.Rather, it setsou t a functional land-use category'such asmixed-income housing or mixed residential-commercial d"evelopmentaswell as specifying rhe purpose (e.g.,bring people and obs, or peopleand shopping, closer ogether). At a later, unspecified d"ate, ftei a ie-veloper has brought forward a suitable propoial, consistentwith com-munity objectives, the precise boundaiies of the zone can be estab-l ished o.permit . r -n".a. :glgper.ro move ahead. The concepr here isclosely ligned with the PUI), mixed-use, and comprehensive develop-ment zoning ideas rnentioned above.

TimeZoning" This is an innovation that has arisen in response o thedemand fo r conrrrlling_urban development in many smali bu t rapidlygrowing communities. Time zoning can be as straightforward as tiadi-tional .zoning-that is phased in over time on a plescribed schedule.Such iming allows_a om-munity ro regulate its paie of developmenr tobe consistentwith its ability to service" ew land and housenotds. rneclassic nd much heralded example of time zoning is Ramapo, Ne wYork, which has been successful n controlling it s pa"ce f deveiopmentthrough the implemenrarion of a timed siquince of zoning an dservlc lng. ' '^ . Figure I l-l in-dicaresa zoning map in the city of Saskaroon,saskatchewan.rhe legend rates thelarge number of alternative typesof zoning regulations rhat can arise in "a city.In rerms of quality, 'the39nj"q ranges the whole gamur from agricuitural to different rypes ofhigh rises.There ar e also some restricted and less estricted industrialuses.As expected, agriculturally zoned areas of the city are on the


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310 Contemporaryssues f Urban andEconomics

'-*&*i . , 1 r

Figure11-1. Cityof Saskatoononingmap.fringes, and zoning that allows higher density is nearer to the centralbusinessdistr ict (CBD).Figure I l-2 depicts the land-use zones in downtown Calgary,Alberta, 1953-1975. The source s the Planning Department of theCity of Calgary. Open-space areas are noted on the fringe of the city,and permitted density increasesup to high-rise offices in the centralportion. The pattern is similar to that exhibited by Saskatoon's oningmap, which begs the question about the efficacy of zoning to createsuch patterns.Water, Sewage and Site Service Moratoria24 Time zoning opens up thewhole subject of growth controls. Where all of the previously discussedcontrols were placed directly on land, site servicing controls work moreindirectly, by controlling the placement, timing, and quantity of basicurban infrastructure such as water, sewage,and road development.Water, sewage,and other infrastructure moratoria attempt to reducenegative effects of growth by directly limiting the urban development

I{p{

ffiffiFiqure 11-21913-75. S

Re

O

I r*'*'*'


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ManagingUrban Land Resources 3 1 1

of thee city,

create

themorebasic

Figure 11-2. Land-usezones, downtownCalgary,1953-75. Source;City of CalgaryPlanningDepartment.)

Iffi GovernmentOpen pace


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312 ContemporaryssuesfUrbanand conomicsprocess.Such measureshave beensomething less ha t popurar with thedevelopment industry, ar d the list of .o.r?t .;;;;" the subiect isIengthy and growing. 'rapidry."The c


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theislies

on

forof

dfor

on

-ee

--

e

ManagingUrban Land Resources 313This ountrys n hemidst f a revolutionn hewaywe regulateheuseof ourland.t sa peacefulevolution,onductedntirely ithinhe aw. t is a quietrevolution,nd tssupportersnclude oth onservativesnd iberals.t sa dis-organizedevolution, ith no central adresof leaders, ut t is a revolutionnonetheless.Theancienegimebeing verthrowns he eudal ystem nderwhich heentireattern f anddevelopmentasbeen ontrolled y housandsf ndivid-ual ocal overnments,ach eekingo maximizets axbaseandminimizetssocial roblems,ndcaringesswhathappenso all others. he oolsof therevolutionrenew aws aking widevariety f formsbuteachsharing com-monhem*the need o provide omedegree f stateor regional articipationin hemajor ecisionsha taffect he useof our ncreasinglyimited upply fland . .32In Chapter8, we spent a good deal of time looking at this trend towarddirectstate nvolvement in land-use and environmental planning. Wealso aw hat in Canada, despite a very dif ferent set of legal and consti-tutional property institutions, there was a parellel trend toward directprovincialcontrol over land-use decisionsan d provincial review of lo-cal decisions.Table I l - l setsout, asof Apr i l 1975, he var ious ypesof land-usemanagementprograms in effect in the 50 states.Notice that state in-volvement s significantly broader than the environmental protectionareashown earlier in 'Iable 8- I . f he table llustrates hat the statesar einvolved across a number of'lancl-use activities and in a number ofcapacities,rom acting as a coordinating agency cr r the environmentalimpactstatesmandated by the National Environmental Protection Ac t(NEPA) (seeTable 8-l for deta ils) to the development of statewideland-use nd land management programs (e.9.,Hawaii and Vermont).The stateshave stepped directly into the land management area inresponseo the repeated failure or inabi lity of l ocal government to doso .Local government is either too small or too narrowly based o takeeffective action on negative externalities that fall outside itsboundaries-including, frequently, some that it generates, such asdownstreamwater pollution from untreated or partially treated efflu-ent. States have acted to protect endangered wetlands, farmlands,shorelands,and ecologically sensitive areas. Of more direct concernhere are stateattempts to minimize negative externalities arising fromurban and regional development. Control of power plant siting is anexcellent ase n point, as28 states,as of 1975, exercisedsuch controls.Similarly, 3l statescontrol surface mining.Other statewide attempts to co ntrol such externalities nclude thefollowing."

Air Pollution Stateshave an important role under the Clean AirAc t of 1970.Through their power to regulate land use and transporta-


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Table 11-1 Statusof StateActivityRelated o Land-UseManagement, pril1975Enabling Legislation Func,ional Programs

Municipalities Counties

Regional Procedures forAgincy Crcrdination ofR?vieiry FunctionalAuthority Prognms

RegionalAgencyAdvisoryOnly

Iand Use-Value TaxAssessmenaIa wSurfaMini

AlabanraAlaskaAr lz( ) I )aArkansas( la l i lb rn iaColorado( lonncct ic t r tDelawareFloricla(icorgiaHawaiiIdahoI l l ino isInd ianarlowaKansasKcnt uckv[-ouisiannMaineMary landM:lssirchusct sMichiganMinncsotaMiss iss ipp iMissou iMontanaNcbraskaNeva


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Functional Programsland Use-Value TaxAssessmen!law SurfaceMining

Flood-olain\eguIa-'lons

WetlandsManage-menaPowerPIantSiting

Coastal Zone Staae LandCritical MEmt. Program Use ProgramAreas P;rliciPation' (see Code)oNoYe sNoYcsYe sYe sYe sYe sYe sN oYe sN-oYe sYe sYe sNoYe sYe sYe sYcsYc sYe sYc sN oNoYe sYc sYcs"Ye sYe sYcsYcsN


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316 ContemporaryssuesfUrbanand conomicstion, states can exercise significant contror over both stationary andmobile sourcesof air pol lu"t ion.water pollution under the Federar water poilution control ActAmendmenrs, rhe sra.resre given a rarhercenrrar; ; [ ; ; ensur ing thatthe water qual i tv within the"state s prorected.statesdo this nof onrythrough diiect t"::]:T""t in supplyi"s;;;;, ;;;urJ,, uy sharing inthe funding of sewagerrearmenifuiitit i'., ;"; '."f";;;r,g ,rur. warer_quali ty statutes.

solid'waste pollution under the terms of the federal solid wasteDisposal Acr, sraresare. provided with f.d;i i;;A fo r developingstatewidesol id waste disposarprans. Again, sratesare envisi.ned asplaying a key rore in the'imprem."uti,r"" ,r i r,rtiJ,uri. ,rrurrugemenrprograms and in overseeing that such ptu", u. . uJh.la ," g/ i"."igovernments and by devero[ers in uninctrpo.u,.a-[u.,. of the variousstates.,Yoise porlution while f'ederal activities here are restricted tof,ll. ldTdr frrr airporrs an d rhr'ugh general imp*t, uiu".rui.,rrrmenrarlmpact statements, some states,such as Minnesota,,, have moved tocorrrol this exrernarity. This has traditio""ily u"."i locarconcern vianuisanceordinances.stateshave arsobegun tr involve themserves irectly in two criticalareas: rarewideald-yie^planning-anartut.*rd.r"ri"rru,ion pran-ni r rgand managemenr.s of Ig ib. s ix sraresad statbwideand_useplanning' l l se&ing , minimizehecosts r-cont inuedrbanexpan-sio. and to channel*growth,and rotectendangerea urrir.up; ffi;ronnlents,and resources.fhe.,rits mayno t be"mini-;;J, however, fthe excess emand or urban.sRace, .hu,'.t.d i;;;';;;;estion in ex_isting.improvemenrs-ExamprJsare-llegai ;;r;;;;r";;its and over_crolding' ' fh.eregurari,nsypicatyexemprexist ing anduse.During rhe lg70s virtuaityotf , trt" fr id;;; f"; ; . ,_"., , , , .r.broadened nt , srate ransportition departnients,hui becoming on_cernedwith modesorher tian roadsand uehicre;.;Hi, regard, rheA-95 budger eviewprocess f the "ros: ?{ y"";g;e-nt'ana Budgets(9YB) and rhe provisionsf the igso xrrionri-o. i. . , .e InrersrareIigl::.lt Lct hetped, coordinateand r. u.J-,runJil.urton nd o:i:,:rr] ir.. I ransport r ,n plan wi h land_ seplan ,u,iJ _or. recen lyXj::rJ,l;rronmenrat protectionand rhe conr;;i tr ".g"ir"iStates have created .regi'nal agencies such as the MetroporitanTransporrarion commission"in rhe s?; rrancisco B;il;;" or rhe two_state Port Authority of New york-New.i;ir.i il;r. regionalagenciesllowsrareso focustheir.poricycr#;ies ",ii.ni. localizedregions where air, water, and enviionmenhl externarities ar e found.

yet enabgraphicareglonalfunctionastates,asWashingboundariFederaltivities,wor are of(suchaseral inteing a stagovernmmake gradirectly.nant lanwhere aenormoumost nograntingintercitv

Finaand on tland havand posthe fedesistencytion, totive effealreadytoric bufor newpreservures enMAR

In govelmpropebetweentrols andwill diffe


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ManagingrbanandResources 317ve t enable them to deal with these external effects at a broader geo-lraphical and political level than can local governments. Suchiesionaliration is bound to create ts own externalities f and when thefuictional geographical region spills over into another state or otherstates, as in" th"e cise of th; Nei York metropolitan region and theWashington, D.C., metropolitan region. Such spillovers beyond stateboundaiies require federal intervention.

Federal nvolvement n Land-Use ssuesFederal nvolvement derives from the negative effects of land-use ac -tivities,which enclangerpopulations acrosswide regiont 9{ t-h. countryor are of sufficient n"ationil importance, even though highly localized(suchas a unique environment iike the Grand Cany^on),.toequire fed-eral interventiron. Direct federal intervention is difficult, land use be -in g a stateconcern under the U.S. Constitution. However, the federalgo"u..rl-.r-rt has exercised great control indirectly through its ability toirake grants, levy taxes,g.i.tt t.rbtidies, and in interstate ssues ontroldirectli.rnSuch iirect nr-,? ndirect measureshave alarge, often domi-nant land-use element, since polluting activities must Iocate some-where an d utilize land in the process.Th e federal government ha senormous mpacts on land use through its,transpoltation investments,most notably'through highway conslruction, and more recently thegranting of capital aid op"eratingsubsidies o urban mass ransit an d tointercity railroads.3"

Finally, federal tax policies on artificial depreciation allowancesand on the deductibility ,rf tn" costsof holding potentially developableland have affected the urban development processand the negativeand positive externalities that have flowed from that process.Clearly,the fbderal government must rationalize its tax policies to provide co.n-sistencywitfr other measuressuch asenvironmental protection legisla-tion, to provide protection against, an d discoura-g_ementf, the nega-tive effetts of uiban growrh;nd land use. The U.S. government hasalready taken such measures vis-)-vls the preservation.of valued his-toric duildings. Similar measures to reducb the incentive to use landfo r new depieciable structures would provide a complement to thispreservat ion ol icy and to the other environmental protect ion meas-,r., "nu.t.d by the U.S. government since the late 1960s'u'

MARKETMPERFECTIONSNDGOVERNMENTOLICIESTO CORRECTHEMIn government intervention to overcome market imperfections an dlmproper prtclng of land resources, there are two areas of differencebetweenCanada"and the United States,namely, in the nature of con-trols and in the perception of the problem. The issues o be discussedwill differ for each country, as the perceived problems differ. For ex-


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318 Contemporaryssuesf Urban and conomrcsample, there is much talk in the United Statesabout the need fo r gov-ernment ownership to protect prime farmlands, rare an d beaulifulnatural environments, and historic structures. n canada, ownership ismuch lessan issue, irst becausegovernments own much more of can-ada than they do of the United statesand secondbecausegovernmenrscan exercisemuch greater control over land in canada wilhout havingto resort to direct ownership. There is a great deal of public policy iith e United states directed toward environmental issuei. Muc'h r.i..rtu.S. legislation s aimed at protecting coastlines,unique environmentssuch as wild and scenic rivers, and farmland. with-the exception offarmland in British Columbia and ontario, we will no t see such con-cerns mirrored in Canada." A p.ssible_explanation o. r many of the differences in defining is -suesbetween u.S. and canadian cases tems rom the relative popi ta-tion sizesof the two countries an d from the patterns of land'owner-ship. 'fable. I l--2 an d I l-3 se tour dara on th e renure parrernsof landin canada and the United States.Private ownership uccorttts fo r over5.8p_erc.entf the 916.8 mill ion hecrares 3.b39 mill ion square miles) nthe united States;wherea-s-.privatewnership accounts br only g per-cent of canada's 916.7 mill ion hecrares$.b40 mill ion square -ite$. Itshould be recalled that canada has 24 mill ion people, whereas rheUnited states has230 mill ion residents. t is clear from theseaggregarefgrr.r that with much grearer densities rhere are likely to 6E to"o..land-use conflicrs in the United States ha n in Canada.'Turning now to substantive ssues,we shall be looking at canadianapproaches to the following land policy issues that cairadians have

Private IndianIand' Iands" Federald Stated

deemed imPormarkets; sPecbl v farmland aMonoP

Concern aboCanadians n vwould logicallhuge sufPl iespart icular lYurhustrv ' and rewhen consideda's 24 majorcontrol therefeasy to imagiurban land'Concernprices of urbalscalated durifindings fo r thconcein on thtives. Table I the Nationalhave been furtry. The marmore rapidlYaDPreciationp'ti..t duringior house PrimmediatelYicized oligoPus examine tures taken incompetitionProbablcontrol monland bankinglocal and Pran d Saskatoations sincefollowing'

l. ImProve2. Reduced3. PublicP

Table11-2 Land enure n United tates-ownership f Land, y class,1959-'197g(inmillion f acres, xcept ercent)

YearCountyandMunicipal

1959 22711969 22641974 22641978 2264Percentdistr ibut ion 100.0

t332t 3 7l 3 6l 3 l 558.

J 35(,,5 l522.3

/ 0 576376174 232.7

10 3l 1 4l 1 6I J J6.0

88 689789 789 739.6

I u202020. 9"Changes in total land area are due to variable methods and materials used in periodic remeasure_ments, and to the construction of artificial reservoirs.'Land owned by individuals, partnerships, and corporations.'Managed in trust by Bureau of Indian affairs.dChanges in f'ederal and state land holdings mainly represent federal land grants to the State ofAlaska. Part of the change indicated after lg74 ma y have occurred prior to 1g74.source: .S . stat is t icalAbstract,,981(washington D.c . : U.s. Bureau of the census),Table No.3gl,p . 2 2 4 .

PUBLIC LAND


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Managingrban and esources 319deemed mportant: monopoly and oligopoly control of urban landmarkets;speculation; and protection of uni que resources,most nota-bly farmland and historic or architecturally unique buildings.MonopolyiOligopolyControl of Urban Markets n CanadaConcern about this issue might seem somewhat ironic to non-Canadiansn view of the sizeof the country and its land reserves.Onewould ogicallyask ho w anyone can exercisemarket control given suchhuge supplies of land? However, land markets ar e highly localized,particularly urban land submarkets fo r such land uses as housing, in-dustry, and retail trade. The totality of land in Canada is irrelevant

when'considering control over urban land resources n each of Cana-da's24 major urban regions. Concern for such monopoly/oligopol ycontrol therefbre becomes an empirical issue, it being conceptuallyeasy o imagine large landowners virtually cornering the market inurban land.Concern fo r artificial shortages and oligopolistic manipulation ofpricesof urban and urban fringe land escalateddramatically as pricesescalated uring the period 1972 to 1975. We will leave the empiricalfindings or the next section,but we will illustrate here the high level ofconcernon the part of the Canadian public and it s elected representa-tives.Table I l-4 presents data on lot prices for houses inanced underthe National Housing Act (NHA) in Canada from 1966 to 1975. Thesehavebeen further broken d own withi n the table by region of the coun-try. The markets are highly regional, with western markets growingmore rapidly in general and experiencing higher house and lot priceappreciation.This table revealsan enormous increase n residential otpricesduring the 1972-1975 period (similar increaseswere recordedfor house prices too). Some culprit had to be found, and attention wasimmediately directed toward the urban land market and its widely crit-icizedoligopolistic structure and alleged manipulative practices.38 etusexamine these criticisms at face value and explore some of the meas-ures taken in Canada to halt the manipulative practices an d restorecompetition and price stability to urban land markets.Probably the most widely heralded and publicized programs tocontrol monopoly and oligopoly price manipulations are the publicland banking and public lot servicing activities undertaken by severallocaland provincial governments in Canada. Both Red Deer, Alberta,and Saskatoon,Saskatchewan, ave had municipal land banking oper-ations since the end of World War II.3' Stated objectives nclude thefollowing.

l . Improved planning and orderly community growth2. Reduced cost of serviced land3. Public participation in land price appreciation


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? L 2F X :x . : .7= ' -- cao * r! 92 ; gx . : 7 , @ 1 E E Sa! = G -t r Y E a '5 . a ; qG e ; - E A . g. = v LE : 1 - c: E ; E- o E i :) a h o :E . f i l. 9 Eo & , 8! O :. 9 c 7 yE = ; i d ; E - ^ ;; - v # - ? $ +, . : E E F a ; ! - 3 E i > t r q= ! * ! a6 ; Q ^- A = i , o: r" : - = ! o' ; v t' d x E3 = : . t e E - y - r E U 9! u t r . -O . : i j -: 5 . : Ft > l iE i ; U! : ! b . 6 ; : C t h, & ; UL- .; -o' i - ; 9 A,- lc t: ' " , I c9 = - LF t s # s - g; - I F - !5 F , ' E- p ! E !s i " o t+ d z : s g= ^ i 6 H do : a - ' * r . u_ . = u : ui E T T F EE 8 : i ? i FE El e z ,o Q d 9 ; .

a ^ ' , 6 6 a a qi ? i i E9 v : 9 > !: 9 : , : = ; b t

= 2 C , . - N 6 r m i O @i , a . T j . - r -q - e d c Y c . J , l n _I \ C ( O N y V C ( Oe s c { ( o o + + rT . 4 o - : N q qm m * c ): p C : ' o l m r t l m- f S J c a l r S I l @oC ( Ot o: ) (Oa , . j n ;v s i -d l mr. rt

' . ' o I c - | | sj ' l r + l l N= - o md ^ i @d c cr o

N\-)Ft

o 5 i i l ; ; X i - ; *6 6 ; o & 6 6 ; ;' O o ) - m r O c O $ O $r o - o )+ 1 ( Q o ' - ; o : ' a$ , i ' . i l ; R g iN + ( o d : r j -, O @ : : - @- d . , o

F

(.)

6;

dthq r r c ) 6 r l o + r o' O t \ N | 6 r f O c )Y & 6 O ) + c l ) c o c r )f a m ( o . : ^ . + s r o ' U 4Y m + r oN; I Ei : tY L= a xY O ;; - . !x a >N d ,

= 6 o -: o 9 t FE S - 6 !- a : : 9. Y *

= !- a r ! -i E 6 F f ,f - ! ! Y: U : 1 J G \o * . E o F r3 - : : - o X t ru ! 9 - v -o t x j l - - a= , 6 - ? u E a . 9 . 9 4= - ! ! z P o g E g= T . = | 9 J ; F : . = : , o.i F tr fr b 6 : " 3 j* rv n 1 x * > t r . 9 ! . ! . s EE i = E E : ; : ; : E


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322 ContemporaryssuesfUrbanand conomicsTable11-4 Percent hangesn Average ost per-FootFrontage f Fullypaid,Fullyserviced ots or NewHousing inanced-Underhe NHA: elec-t'dJu"rag"sof UrbanAreas

Percent Change Percent Change19681969 1969_1972

Anothcused oncarrylng cimplemencould notland inveland suppket.ooSucbut also amanipulatproblem o

Monopolyspeculatiomuch of ththis view,intent ion oland valueThe abovpenses orspeculatioon the martion was th1974J Thiti


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Managingrban and esources 323Another policy directed toward restricting oligopoly control fo-cusedon changes n federal and provincial tax regulations relating tocarrying costsof raw land. Begun by the province of Ontario an d laterimplemented by Revenue Canada, from 1974 to 1979 developerscould not deduct from taxable income interest charges for holdingland inventories. The intent was to force developers to put additionalland supplieson the market and discourage holding land off the mar-ket.a5 uch legislation was not onl y aime d at large-scale andownersbut also at real estate speculators,who, it was alleged, also helped tomanipulateand drive up land prices.Thus, we next turn to look at theproblem of speculat ion.

Speculation in Urban Land MarketsMonopoly and oligopoly control was perhaps only overshadowed byspeculation n popularity as a source of rising land prices. In fact,much of the public saw hem as essentially he same ssue.According tothis view, land speculatorsbought and hoarded land with litt le or nointention of improving it, to take advantage of the rapid increases nland values hat were being recorded in most urban areas n Canada.The above-mentioned removal of interest charges as deductible ex -pensesor holding raw land w as a federal and provincial effort to stemspeculation s well as to coax large-scaledevelopers to put more landon the market. Perhaps the most dramatic effort to influence specula-tion was the Ontario Land Speculation Tax imposed in the spring of1974.*'This tax was to be levied on all gains realized from transac-tions, with a number of important excePtionssuch as principal resi-dences, acation homes, and reso urce properties.'7Land banking andpublic ownership of land were also frequently put forward as meansfor controlling speculation, the general notion being that any gainsaccruing rom such speculativeactionswould be realized by the publicand not by narrow private interests.

Protectionof Unique Land and Building ResourcesWhen t comes o protection of unique land and building resources,weseedifferent patterns emerge in Canada and the United States.U.S.approachesneed to be consistent with constitutional protection ofproperty rights, while Canadian policy interventions do not oPerateundtr such constraints, only under the pressuresof politics and socialvaluesand change.One example is the British Columbia Land Commission Act topreserveagricultural land, as discussed n Chapter 8.18 nother is theOntario Land Speculation Tax, which made certain exemptions fromthe ax for farmland. Land that had been, and continu ed to be, farmedwasexempt from the speculation tax; other tax exemptions are af -forded farmland in every province-it is taxed for property tax pur-


22/35


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Table 11-5 VermontLand GainsManagingUrbanLand ResourcesTax RateInctease in Value (%)

Years Land HeId by Transferor 0-99 100-199 200 or moreRate of tax on gain

Less than one yearOn e year, bu t less than twcrTwo years, but less than three Z0 30 40

325ax -nthe

in

t de -

re -be -

p-he

reoe

as

as

x-

30 45 6025 37.5 50Three years, but less than fourFour years,but less ha n five 22.5 30l 0 1 5 2 0l 5Five years,but less ha n si x 5 7. 5 l0soarca.'Robert G. He aly an d John s. Rosenberg, Land LIse ru r States,2nded.(Balt imore: Johns Hopkins University press), 1979, p. 70.

vice,and its actual effect on speculationand slowing the paceof devel-opment remains an open question.r"iIn sum, activity n the united statesha sbeen imited in controllingspeculationan d oligopoly in urban land markets. Based on rhe canaldian experience, we can envision this varying over time with the riseand fall of house and land price-s nd with th"eebb an d flow of publicconcern an d political pressure.oT

Protectionof Unique Land and Building ResourcesDesire o protect these resourceshas ed to u .ung. of innovative land-use control techniques. Among the resources 6a t have come underprotective egislation and policiesar e prime agricuhural lands, historicand architecturally important buildings, op.i rpu.e and scenicvistas,coastalzones, and wild scenic rivers.'PrimeAgricultural Lands ,Zoning land fo r agricultural purposes n theUnited states has been deemed to be uncdnstitutional without com-pensation.s'other approaches have to be sought. Four ideas havecome fbrward.

Agricultural Easementsor preservation Districts The basic idea is toestablish agricultural districts where farmland is thought worthpreserving and involves purchasing open-spaceor p..r"ruuiion rights(usual lyeasements, ut also restr ic i ivecovenants evied by the pr.3.r , towner in favor of the community or the state).Th e farmer reieives acashpayment in return fo r keeping-the an d in farm useor open spacein perpetuity, or for some mrrtually agreeable period of tim., ifte.which the agreement is renewed.u'Thelost is significantly lower thanpurchasing the land directly, while simultanedusly farmers receivecompensation.use of Eminent Domain to purchase prime Farmlands The state,city, or country can resort to direct acquisition either through negoti-


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326 ContemporaryssuesfUrban and conomicsated purchaseor through compursoryacquisit i ,n. The cost s high forthis.ption nd ncrudes-rheosi f rax evenu..*n.rrif i;; i lEil,-li c doesprovide grearerconrror,which ;;y;;;f"", o. necessaryover and above he purchaseof open-space . pr....uu;;;^;rd;. tTaxand Assessmentelief Virtuaily everystateprovides ax relieffb r farmla.g, by raxing.farmrand t agricurti-riui-"r!'*rre insteadofcurrent marker ".1r1..which usuaily nirudesu .p.."ruiive and urbanuse c,mp,nenr.tusometimes,as in. .N^ew er#y una carifornl*i itaxesare owed if the land is later sordro . u-""ttr6.;;;.

" Transferable Development Righ* eDRg The foregoing ap_proaches re al l basedon tradirioriar earpr"i.r,y'i.unru.r,,rn, or taxl:_d.Tr"trmenr-procedures.The TDR .on..'pr, 6";;;.r. is a signifi_canrdeparrure rom pasrpracrice nd has eclivJ ;;r; arrention e_cause f irs nnovativenatureor perhaprb.;;;.. i, ,p"p."*a at lasr obe a cure f


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Managing rban andResources 327OpenSpaceand Scenic Vistas Conservation (o r open-spaceor scenic)easements ave been particularly highly touted.67Direct purchase fo rparksand open space s also an extremely common form-of preserva-iion, imited-to thb availability of taxpayer willingness o allocate undsfor such purchases.Recently, a number of communities have sought to zone openspace irectiy."*The courts have been loath to allow such measures nthe absenceof compensation for the loss of development potential.6eSomenotable exceptions, however, have been recorded, such as theAdirondack Park Agency in Ne w York State, and some of thestatewide and-use measures n Vermont and Maine.7"CoastalZones In contrast to the previous preservation problems andsolutions,where the federal government has taken a limited role, fed-eralinvolvement in both coastalzone management and wild and scenicriver preservation s paramount, and has provided the essential eader-ship n both areas.T'- In Ohapter 8 it was noted that one of the most signficant forcesredefining property rights in the United Stateswas he growing roleofthe federal governrnent in its environmental protection activities.TheCoastalZone Management Act of 1972 came about because "Theincreasingand competing demands upon the lands and waters of ourcoastal


26/35

328 Contemporaryssuesof UrbanLand Economicsexternalities, actions o overcome weaknessesn market operation have:rlmost no local government base.The reason is no t hard to identify:These problems_ar e generally broader in geographic scope than asingle municipality and require regional act'ion"at^theminimum bu tmo.re usually state land-use control action, or federal fiscal and taxactl()n.second, while stateshave almost excrusiveauthority in regulatingland use, the federal government has taken an enormous role i-nwork]ing to protect underpriced land an d building resources.Moreover, ad-ditional federal inrerv.e.ntion, hrough taxes an d subsidies, s highlylikely to-extend federal involvement into the areasof monopolistic"anioligopolistic control of urban land markets as occurred ^i n canadawhen the. ederal government acted to remove the deductibility of in-terest on holding costson land.as egitimate businessexpenses.hinally,the direct spending p()werof rhe federal governmenr,vJitn m abil i ty obu y land to create parks and land reserve-s nd with it s enormous landholdings-still roughly one third of the entire land massof th e UnitedStates, ncluding Alaska-cannot be overlooked.

THEEMPIRICAL VIDENCE:ANDMARKETINTERVENTIONSIn the preceding sections we looked at a variety of land-use controlmeasures,and related tax measures, hat were iniended to overcome anumber of problems inherent in markets: the failure to accounr prop-erly fo r negative externalities; positive externalities; and market im -perfections, such as monopo.lyul d oligopoly and discriminatory prac-tices. n this final sectionof the chaptei, we witt look at evidence'on theexistence or severity of the problems and on the effectivenessof thevarious land-use policies.. Having.established.anempirical fbundation fo r controlling nega-tive externalities (or failing to do so), we move on to examine"recEntfindings on the direct andlndirecr cosrsof land-use and urban devel-opment contr


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ManagingUrbanLand Resources 329haveto identify:than aburan d tax

n regulat ingole n wclrk-ad -s highlyandin Canadaof in-inal ly,ts abitity [< randthe Unitecl

ontrolvercomear()p-arket im-rac-n thef the

nega-ecentdevel-

usu-n urbanaby aroper-(theof signifi-usesJe.g. ,

apartments and commercial uses adjacent to single-family housing).The earliest work y3.r b/ crecine, Davis, and Jacison in i967, usiigdata or the city of Pittsburgh.?uhey found tliat identical uses n diflferent parts of the city sometimesappeared to have negative externaleffectsand somerimes positive ones. on balance, t wai impossible toassert significant external effect from lower-order land uses.The au -thors were the first to qualify their results and methods, which led tothe.study, si x years later, by Rueter, who, using more elaborate dataand methods, confirmed the crecine, Davis, arid Jackson results.TuY.u.9 recently, n 1977,Maser, Riker, and Rosdtt,using Rochester,New York, as their laboratory, studied two questions: heixistence ofsignificant negative externalities and the elfectiveness of zoning incontrolling them.77 fhey found that there were no significant "*"t.r-na l effects and, moreover, that.zoning appeared to ha"ve ittle, if any,eff9c1-on. rices in any guelr. Goldbeig and Horwood, and Goldbeigand Mark, .using^data


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330 Contmporary ssues of UrbanLand Economics

o@c

l

aJ

ble. The firsand therefowe will lookthe distributthe populatfor inilvticaFirst, inthe evidencOhls et al',point to thein g land vaOn thgreatest mEation of lprice of lanilies fromvalue of hcurs fromThe evidesignificantis"directedan d BosseThe esistent. Ando act tomanner.terms wheland for lomust inevand devesingle-famLaiee lotsto 'h.itoverzonln(again, cotri-butionaModestoZoniciencYgral l too efexclusionpay moreize subsishould bsources,flects mo

I)o I)c

Fisure 1-3. n"", ,lrJ.arities n ""d"""'d ;; "'tu"'"'rents.central land usesand,.accordingly, their prices or rents ar e depressedbelow what they would have bee?i" ,n . u'nr.".. of it. rr.guriue exter_:llt:yj Accordingly,3s ,r . -ou. ,rri.pur, airtur,l.-0,,'the land usehanges' and normaily ' ( i .e. , in the absenceof the exiernar i ty) randvalues hould emain t ih.'l.u.rF,. uo*.*., rrr.ya.op r" therever6and do not regain heir "normui;t.u.t, ""lii'ii'.iui. tu . enoughaway rom the ncbmpatibreses" "" l""g;."ii.. in.ir negarive f_.Tfi.:l':t,:r_toint c).The dotted i"; on rhe iguredenores hat andaruesor rents wourd have been if there were no external effects de_pressing them.zoning is predicated on the assumption that these negative exter-nalities exiit and ar e imporr";;;;;;;-inanrs of land valuesand renrs.zoning could, in theory, protect the acrverselyaffected land uses andthereby aise aruero ih.ir ".,or-ul,ir.u.r ti.6., h."a"Ir.a ine n Fig_re I l-3)' stuil savs ha t there s reason o believen" , ".guuve exter_nalitiesdo lower land varue,u.rJ;;;;r. RueterurrJ *ii.rr, however,saythar this is nor rhe caseand thai iand valuesa;rirr.--ore or lessmoorhly.alonghe*rong-run quilibrium path denot;J;y the dottedIrne. n this case, here is no n'eed or zohing.Fi;;iry, Ihere is addi_5::,"'fJli'.T:t[a?.1,!,!ies!erg,andwhiL,h",l,i"i"ginpracticei:*i,?JJ:';""1T#J'1,"?fl'11::#J,il"f"";lT:inffigNext, we move-on to examine the empirical findings on the effectsof zoning on the urban land markets. i *o sortsof evidtnce ar e ava'a-


29/35

exter_useande levelef_andde-

andFig-

less

is

ManagingrbanandResources 331ble.The first examines the efl'ectsof'zoning on land valuesand rents,and therefore addresses questions of allocitional efficiency. second,we will look at the distributlonal effects of zoning, that is, the effects onthe distribution of wealth and income among tfre various members ofthe population. The two effects are related,"but are worth ,.pu."ti"gfo r analytical neatness.First, n terms of the effectiveness f zoning in raising land values,the evidence forces us to draw the opposite co"nclusio.t.h. work bfohls et al., Maser et al., and Tunnicliife (for the city of Vancouver; af lpoint to the mixture of effectszoning can have,both raising and lower-ing land values and renrs, in no r.idity predictable fashion.on the second issue, the evidence- s piling up that zoning's

greatest mpacr appears ro be on distribution, no t dn tire efficient alio-cation of land. Th e principal result of zoning has been to raise theprice of land for houslng and to exclude effecti'vely ower-income fam-il ies from certain communities and submarkets, thereby raising thevalue of housing (wealth) in those communities. A redistributio"noc -curs rom lower-income groups to middle- an d upper-income groups.The evidence s mounting that zoning has become sociaily.o.[ty *itnsignificant.negative istri6utional coni6quences.The interesred readerts drrected to Bergman,EzScott,8oMills and Oates,8,an d Babcockand Bosselman.t5The empirical evidence on the costsof zoning is strong and con-srsrent.Analytically,.r4,e an.seewhy the effects of Exclusioniry zoningdo ac t to raise land (and housing) prices in such a straightfor*ur8manner. Figure .l l-4 shows what happens in supply-aid-demandterms when municipalities exclude lower-cost housing. The supply oiland fo r lower-cost housing shrinks, and with .orrrturit demand,'piicemrrst.inevitably rise. Allowld uses (usually high-technology resiarchand.development industries, or executive offrce parks ufra u.g.-totsingle-family homes) ar e us'ally ovrzoned, lowering rheir flrice.Large lots for Tgrg expensive houses become underpricled lcompareJto their equilibrium without exclusionary zoning) because ofoverzoning, and_ an d fo r lower-cost housing becoffes overpriced(again,compared.with.nonzoning), becauseof"underzoning. The dis-tributional inequities in this siiuation are clear and return us toModesto in 1885, where we started our discussion..

Zoning appears to be largely unwarranted and ineffective on effi-crencygrounds. on. distributional grounds, however, it appears to beal l too effective and highly regress-ive.This result holds ^whether theexclusion s done on racial or environmental grounds. Excluded usespay 1o1e- or land than otherwise, while protec"teduses n essence eal-ize subs-idieshrough excess upplies of land fo r their use. one caveatshould be stated: In the caseof environmental protection of scarce e_sources, the resulting higher price is economicilly efficient since it re-flects more closely true social costs rather than narrowly defined eco-


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Contemporaryssuesof Urban Land EconomicsAn n u a l s u p p lyo fland a f te r imposit ionof zoning or otherland us e contro ls

An n u a l s u p p lyof land pr io rto the imposit ionof zoning or otherland us econtro ls

Annual demandfor land

oJu.nrityof rndQoFigure '11-4. Demand ndsupply, ithandwithoutand-usecontrols.nomic costs. 'fhus, higher prices need be neither inefficient norindications of ineffi ciency, if the higher prices reflect the "true" socialvalue of the resource whose price ri ses as a result of environmentalcontrols and protection. However, the higher price shold reflect mar-ginal private and social costs.

Regulating Monopoly/Oligopol y n Urban Land MarketsTh e possibility of monopoly and oligopoly control and of manipula-tion of urban land markets representsan important market imperfec-tion. It is an empirical ques tion basically.A major source of evidence sthe Canadian Federal/Provincial Task Force on the Supply and Priceof Serviced Residential Land. That task force was constituted in theface of enormous price increases n l and and housing in Canada from1972 t1975. It delved into the ownership characteristicsof vacantland ripe for development and surrounding the major cities in Can-ada. Its findings were clear and unequivocal: There does not appear tobe any Canadian metropolitan area where land is held in sufficientquantity by a sufficiently small number of firms to allow these irms tomanipulate the price of land.86 able I l-G setsout ownership figuresshowing nominal ownership and then ownership combining separatefirms if they had two or more directors in common.tT The rule ofthumb for market power (i.e., the power to manipulate prices) s thatthe top four firms control two-thirds of a market, the top ten firmscontrol three-quarters; or the top 25 firms control 90 percent or more.

Table11-6 OOwnershipta-MetrcpolitanAreaCalgaryCharlottetownEdmontonHalifaxHamiltonLondonMontrealOttawaReginaSaskatoon'forontoVancouverWinnipegSourre:Federal/PDoun to Earth, Vo

Only in Halifari a met; in thein the top fouThere remtion ratio formSecond, the dastructed on floor nondevelopthe flow intoareas and prethe total stockbecausehomeof land underone ca n speaWe can seship and landidly r is ing houpublic owneridentical to thtask force. ThiPart II , whereare relativelyland price der is ing demanThe taskthe effectiven


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Table 1- 6 Ownershiponcentration:Ownershiptatistics

ManagingUrban Land ResourcesNominal and Effective

333

% Owned byTop 4 Owners %

Owned byTop 10 Owners

% Owned byTop 25 OwnersMetropolitan

Area Nominal Effective Nominal Effective Nominal EffectiveCalgary 30.4 46 .Chark r t t c town l l . l l l l . uEdmonton 30.0 NAHalifax 73.9 73.9Hami l ton 21.0 21.0London 3O.7 32.1tNlontrc;r l 13.6 NAOttawa 63.2 64.4Regina I'rtl.3 5f1.3Saskatoon i]4.5 9U.'l'


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334 Contemporaryssuesof UrbanLand EconomicsTable11-7 An lllustrationf the rrelevancef PublicVersusPrivateOwnershipor Short-run ousing riceFluctuationsUrban Areas withHigh GovernmentOwnership

Percentage Change, lS72-197 5

NHA Lot MLS Dwelling NHA Dwelling

havior.nnSmithmarkets will betherefore everylization ratherAside fromthere is a relatsathered bY thSupply an d Prthat'speculatiofo r land Priceriod. Two thiprices; second

1950 5Figure11-5. LMontrealubuto Earth,VolumTaskForce nResidentialan

ReginaSaskatoonWinnipegOttawaHalifaxSaint John

80.759.2154.9l 1 5 . 31 5 . 984.3

99 .1 0 I . 57 . 552.944.968.7

7 . 17 . 78 1 . 664.026.71 7 . 8Average 85. 73.O 56.2Average of 25 areas 86.8 62.3 3 l - q

- 1 .77oSozrcc: Federal Provincial Task Force, Doun to Earth, Vol' 2 (Toronto, Ont.),197u,.183 .

Ontario. Toronto consistently anked n ear the top of the 25 citiesstud-ies in terms of house and lot price appreciation, despite governmentefforts to service and in the urban region.'eThe justification for government ownership and servicing pro-grams is not strongl y supported by availableevidence; there does notappear to be monopoly or oligopoly power at work in Canadian urbanland markets. Those ownership and se rvicing programs designed toincrease he flow of lots and keep prices low are doomed to fail in theshort run, and have not been successful.Equivalent United Statesdatacould not be found, but given the greater degree of competition inurban land markets in the United States, he Canadian findings shouldbe relevant in the United States.e"

Controlling Speculation n Urban Land MarketsTwo sourcesof evidence can be brought into the analysis: heoreticaland empirical. 'Ihe theoretical evidence on speculation in organizedmarkets is enormous and largely focused on financial and commodityfutures markets.l'rThe general finding is that speculatorsca n be ben-eficial to adjustment processes in these markets by correctlyanticipating changes and therefore easing the transition throughguessing correctly in advance of (o r in expectation of) the actualchange.e2Recent work on speculation in urban land markets has reachedmixed conclusionsabout the efficiencyof such activities.Capozzanotesthat speculation can lead to higher prices,but that these higher pricesmight in fact be warranted due to the underpricing of scarce urbanland resources.n'Markusen and Scheffman conclude that the actualimpact depends on a number of assumptions about landholding be -

Di{Terence + ro.7% _ 1 . 2%

ooc

a't.=o, OL


33/35

Managing rban andResources 33Shavior'" Trjh pointsout rhar here s ritrre eason o expect hat randmarkersvrilbesubstantially ifferent from other marketi,and there stherefore .veryeason o expectspeculatorso work asagents f stabi-rrzarlonarher han perpetuators f instabil i ty.r,Aside rom the wori< n financialand commodity uturesmarkets,theresa.rela.riveaucityof work done for ru"a -ui.[;;;;rrsr.s6 Datagathered I !h9 previously ited Federar/provinciarask For.. on rheluppty and Priceof ServicedResidentiar and lead one ro concludethat.speculations risky.Figure l-5 presenrs ata rom the task orcefor.landprice.s ithin' he"Montrealurban...gi;; "".. " ^zoy.u.-p._

li19:"Iy^:liT:_are noteworrhy: firsr, rhe"incrediblevodtility, ofpnces; econd,hat even n the sameurban and marketpricesdo not

* A no " "co 5 0god 4 0

Rive BoisdeSubdiv is ion,p ierrefonds.Ouebec- - - - - Sa b re v o is u b d iv i s io n , o u c h e rv i l l e , u e b e cPortobel o. Brossard.Ouebec

19s0 52 54 56 58 60 62 64 66 68 70 72 74 76Figure11-5. Land-pricemovements 950-1976 n variousMontreal uburbs.[Source:DavidGreenspan,ed.,Downto Earth, Volume / (Toronto,Ontario:Federal_provincialTask Forceon the Supplyand price ot ServicedResidential and),1978,p. 53.1


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336 ContemporaryssuesfUrban and conomicsmove together. speculators can indeed rose,sinceprices can falr as wellas rise.t'1. . The empir icar evidence on specurat ion n urban rand marketsleads us to concrude that specur itors do not necessar iry r ive upl:1::r.,', This is consisrenr ith manyof the ,h;;;;;i;;i'h*il;r;:In sum, speculative activity does .not ap^pearharmful as pur-porred, and ca n in fact re.u. .rref.rl stabilizing'ri,".ii"", in urban landmarkets. 'fhe effectivenessof the Vermont"a.,a orrtu.i., ,p..rru,io.,:ffi:r;:Jrlr.jtionabte and requires additionut ."."-.t urd u f""g.i

protectingUniqueLandandBuildingResources" where our other^analyscseganwith the r".-rii"", ;I)oes the statedprolrler' exist rr fact?' ' he prEsent uestion ests n urlr. ;rag-".t ,ab.ur the relativeabundancer. ,.u..ity "f " gi;;;;.-.r..., aswelras,n questi.ns f ' the uniqueness f the'..endJne..J: ..rource.()rreaspe.r r ' pr,recri.n legisrati,n nd p%lit hasbeen nvesti_galcdvigorously:hecosrs ssociltedirn g.,,r i , t t ira' i , , control.Theresultsare as varieclas the studiesand thJ.ri."tr-.,r-missioning thestudies."" 'No learanswerhasemerg.a, .uui"g rn.-q".rriun of costsof 'growth and growth controlwide open.fhere has been.asignificat-ttm,r.,,-rtf work aswelr n assessingtlre


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general-pyblic in Canada and the United States s becoming moreawareof declines n environmental quality and is shifting its values o-ward environmental protection and against continued devel-oPmenl. o'-'^ . There ar e problems in assessi.g he impacts of the bevy of recentfederal, state, and local protection an d preservation legislation. Th emost requently mentioned effects ar e those on price: e]rvironmentalprotection raises prices. It essentiallydoes this through a mechanismsimilar to that displayed in Figure 1l-4. By restrictiig developmenrand directing it away from easily developed farmland an d ioastalareas, nd by encouraging development in lesssensitiveareasand re-dev.elopmentand reuse of older bu t more expensively redevelopedbuildings, environmental protecrion and presbrvation' policies haveserved o restrict supply. Both of these ef -ects re part and parcel ofenvironmental preservati

Urban Land Economics Ch11

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