Heikkila Ch 2

The Economics of Planning
Eric J HeikkilaCenter for Urban Policy Research - CUPR Press 2000 (2007)

Ch 2

The Economics of Land Use Zoning

p. 25 ‘perhaps no function is more central to what planners do than is land use zoning. Zoning maps apportion the city into district zones each of which has its own set of permitted uses: single-family residential, multifamily residential, commercial, retail, light industrial, heavy industrial, and/or other uses.’

Rationale@ keep incompatible land uses apart eg chemicals from school. Or more controversial exclude affordable housing from well-to-do neighbourhoods. This chapter considers economic efficiency.
“to the economist land use zoning is seen as an exercise in resource allocation, even if it may not normally be viewed in those terms by planners themselves.”
@how to allocate scarce resources in an efficient manner. If the quantity of land is fixed, as in most urban settings, then one if forced to make trade-offs. Zoning maps represent the planners‘ ‘solution’ to the resources allocation problem.

p.26

“An efficient solution is defined as one that yields the greatest possible output (such as social benefit) for a given amount of input (such as land)”
If market doesn’t generate optimal solution, can intervene. Zoning = “quantity-oriented mode of intervention, where zoning assigns each land use category a set quota of land… An alternative mode of intervention is price-based intervention, an option planners would do well to consider to attain planning ends more efficiently.”

p.29 ‘because the quantities of land devoted to either land use cannot be adjusted, any market adjustment must come in terms of prices (fig 2.1 a) market cleared price for resid and no resid is different *or and pn) ‘zoning has a direct impact on the price of the land.’

p.30
‘the market allocation tends to equalize the price of comparable parcels of land across all uses while the zoning allocation will tend to introduce price differentials between comparable parcels of land that are subject to different uses

p.33 ‘the market value of land understates the aggregate value because to fails to account for the rising marginal valuation of land as quantities become more scarce’

p. 35 ‘the aggregate value for all land under the market allocation M exceeds aggregate value for zoning allocation Z by the amount depicted….. We term this the triangle of inefficiency’ (aggregate loss in value

‘market allocation is always the one that generates the maximum possible aggregate value of land as measured by the market demand curves. This is a powerful result and one of the reasons that economists tend to be so enthusiastic about markets. Markets ‘automatically’ uncover the land use allocation that maximises the aggregate value of land.’

p.37
‘the term market failure applies to any situation where the market outcome does not produce the maximum social benefit.’
Market demand 2registers willingness to pay2
2it is not rare to encounter situation where the benefits or cost of the use of a good extent beyond the owner of the good in question. This is particularly so in the case of land use’ eg when the public gets upset about undesirable elements “noxious fumes, quality-of-life issues, or other environmental impacts that are not encapsulated in the market price of the parcel in question.’ termed externalities

p. 38 shows that when externalities’ taken into account a zoning solution can provide optimal benefits.

p. 39 ’the market develops the ’highest and best use’ of properties from the owners’ perspectives, but this may not coincide with the land use allocation that maximises social benefit.’
However market failure does not preclude possibility of regulatory failure. There are also positive externalities )often claim in favour of home ownership and stability2

p. 41 planners have been slow to use price to affect zoning.

p. 44 knowing what correct zoning or the ’benefit maximising allocation’ requires knowing the marginal benefit curve and few planners would claim to know that. Difficult to calculate.
But ‘the information requirement for price-based intervention is less onerous. Here the planner needs only to know the extent of the cost (or benefit) associated with the externality so that the correct tax (or subsidy) can be calculated’ for price based intervention… the market is left to uncover the new price allocation (after tax or subsidy). As market conditions change, the market continues to adjust itself, while zoning intervention requires recalculation of the optimum allocation each time there is a fundamental change in market conditions.”

p. 45
“seeking a rezoning on a specific parcel is akin to seeking special exemption from a tax’
‘public officials hold discretionary powers over legislation that impact specific individuals in favourable or unfavourable ways’ and ‘this situation may open the way to influence peddling’
Advantage of zoning is no money changes hands (corruption)