Planning, Law and Economics

The Rules We Make for Using Land

Barrie Needham, Edwin Buitelaar, Thomas Hartmann

• Publisher: Routledge
• Year: 2018
• eBook ISBN: 9781351618557
• Topic: Architecture
• Subtopic: Urban Planning & Landscaping

Planning, Law and Economics sets out a new framework for applying a legal approach to spatial planning, showing how to improve the practice and help achieve its aims. The book covers planning laws, citizens' rights and property rights, asking 'What rules do we want to make and, where necessary, enforce? And how do we want to apply them in planning practice?' This book sets out, in general and illustrated with concrete examples, how the three types of law mentioned above are unavoidably involved in all types of spatial planning. The book also makes clear that these laws can be combined in different ways, each way a particular approach to the practice of spatial planning (regulative planning, structuring markets, pro-active planning, collaborative planning, etc.).

Throughout, the book shows what legal approaches can be taken to spatial planning, and uses a four-part framework to evaluate the effects of choosing such an approach. The spatial planning should be effective, legitimate, morally just and economically sound. In particular the book details why the economic effects for society are important and how spatial planning affects how the economic resources of land and buildings are used. The book will be invaluable to students and planners to understand the relationship between their actions and the basic principles of the rule of law in a democratic, liberal society.

1

Why Planning, Law and Economics Matter

The Aim of the Book

Law is indispensable for spatial planning. That is obvious: if there were no legal powers for implementing spatial policy, the latter would be ineffective. There is even a separate branch of law – planning law – for that purpose. It is true that many spatial planners regard that law as a ‘necessary evil’. It is, of course, necessary because spatial planning cannot be carried out without it, but it is ‘evil’ because it can get in the way of creativity and good solutions. Moreover, law is difficult and, therefore, best left to lawyers, according to many spatial planners.

Why, then, a book about planning and law, moreover a book which is written primarily for planners? There are two reasons. The first is that there is more to law in planning than planning law. In particular, the laws about property rights and the laws about the rights of citizens have a great effect on the practice of spatial planning. Many planners know even less about those two branches of law than about planning law, to say nothing about how those three branches interact. The second reason has to do with how law is applied in spatial planning. Usually an application is chosen which should make the chosen planning policy effective; the wish is that the aims of that policy be realised. That is, of course, good practice. But it takes no account of the fact that the way in which the law is applied can have other effects too. Those considered here are the effects of the spatial planning on economic welfare, the effects on justice for the citizen and the effects on the legitimacy of the spatial planning itself. When choosing how to apply law in spatial planning (and also when considering what would be good laws for spatial planning), account should be taken of those other effects too, not just of effectiveness in achieving the adopted aims.

In short, planning and law is about more than planning law, and about more than effectiveness. A broad knowledge of law is important both for understanding the practice of spatial planning and for practising it in a responsible way. This book provides a general framework for understanding how law functions in and around spatial planning.

The book is called Planning, Law and Economics, so it is about economics too. Why? There are already many books which subject spatial planning to an economic analysis (see, e.g., Harrison 1977; Heikilla 2000). The answer is that the way in which law is applied can have important economic effects which deserve special attention. Sometimes it is even claimed that the economic effects are the only ones which should count, and that the law should be applied accordingly. Here that claim is studied critically, for the economic effects need to be considered in relation to the other effects mentioned above – effectiveness, justice, legitimacy.

That is theory. But the task is of more than theoretical importance. In order to illustrate its practical importance, the book begins with a story about practice. It is fictional, but not far from fact, as any planner with knowledge of practice will recognise.

A Planning Story

Part One

Imagine the following. Just outside the centre of a large town is a nineteenth-century neighbourhood. It is, in planning terms, rundown. There are a few hundred small houses, mostly terraced and occupied by older people who have lived there for years. Some of those people own their houses, some rent. There are a few shops and industrial premises. Most of the buildings are poorly maintained, some severely dilapidated, a few even derelict. A property firm is buying houses, dividing them into small flats and studios, and letting them to students and one-person households. And also, it is rumoured, to prostitutes and illegal immigrants. There is no doubt that there is drug dealing on some streets. The shops are marginal and becoming vacant. The industrial premises are used for small businesses such as local builders, car repairs, furniture making, and printing. During the day, the streets are lined with cars parked for free, mainly by people who work in the town centre. And some streets are full of traffic taking short cuts to avoid congestion elsewhere. A pressure group of local residents is agitating for improvements, the local newspaper carries alarming articles and the local politicians are fully aware of the situation.

The local government decides to investigate. It sets up a working group consisting of local politicians, local government officials (employees of the local government with the necessary expertise, including planners), and neighbourhood representatives (people who were active in the pressure group). Anyone can make their opinions and wishes known to this group. It is to report to the local council (the elected representatives) and the report is to be public.

Its findings about the physical and social situation in the neighbourhood can be summarised as follows. Most of the housing is suitable for single-family use and could be improved fairly cheaply. There is a concentration (site ‘A’) of derelict industrial premises: if those were demolished, the vacant land could be used for a small park, for there is a shortage of public open space in the area. There is no social housing for rent in the area: perhaps a housing association could be found which would provide that on a suitable location. There is another cluster of industrial premises (site ‘B’): the buildings are underused but not derelict. There are some economically viable small firms still operating in the area, some of which are looking for better premises. A number of shops are vacant, and that is likely to increase. It would be good for the area if some other use could be found for those buildings besides housing, for a mixture of uses would make the neighbourhood livelier. It was noted that there seemed to be a demand in the town for cheap premises for ‘creative enterprises’; perhaps they could occupy some of the vacant shops. And it was clear that the traffic congestion could be tackled only as part of a traffic circulation plan for the whole town.

Other findings of the working group were about the wishes of the local residents. Most of them wanted to continue living there, but in better housing, and without higher housing costs. They wanted less traffic on the streets, easier parking for their own cars, more open space, and they wanted to feel safer on ‘their own streets’.

It was not part of the remit of the working group to make a plan for the area, not even to make suggestions about the content of such a plan. Its task was to investigate the possibilities. It interpreted this widely: not just the physical and social possibilities, also the legal possibilities, the possible ways of realising the changes. The neighbourhood representatives and the local politicians wanted to know more about those possibilities, in order to prepare themselves for the discussions which would follow the publication of the draft plan.

The discussions about the legal possibilities are now reported: “Must a plan be made?” was the first question. This could be a formal land-use plan, showing the land uses which the local government wants for the neighbourhood. The significance of such a plan, it was explained, is that if anyone applies to change the land use on a particular location, and if the application does not conform to that plan, it must be, or can be, refused. A plan can prevent undesirable changes. “But”, the local officials warned, “making such a plan might not be effective in realising the policy aims. It would work only if people actually apply for planning permission to develop in accordance with the plan. If no one thinks that the neighbourhood has an attractive future, no planning applications will be submitted.”

Moreover, suppose that people did, nevertheless, want to apply for planning permission in accordance with the plan. Suppose it is desired that the housing be available to low-income families, as the local representatives wanted, but that someone applies for planning permission to build high-cost housing. “Even if there were a formal plan showing the desired land use, it would not be permissible to refuse that application,” the officials said. “Our planning legislation does not allow a distinction to be made between houses of different prices.”

So, making a formal land-use plan might not be effective in all respects. As a result, the working group discussed another possibility. This is that the local government starts to acquire properties, improve them, and dispose of them for uses in accordance with the desired land uses. “So, the local government can refuse to sell to speculative property developers?” asked the neighbourhood representatives. Then it was explained to them that a government body handling in property is bound by restrictions additional to those binding a private legal person. In particular, a government body is required to act impartially, which means that it should not discriminate unreasonably between possible buyers.

Suppose – the discussion continued – that the local government acts in the property market within the existing laws. That could be extremely effective in realising its planning aims: but only if the prices were right. High acquisition prices would persuade most owners to sell, and low disposal prices would attract the desired users. But it could be very expensive: the costs would be high and the returns might be low. This consideration did not concern the neighbourhood representatives, who assumed that their wishes were so important that they should be subsidised if necessary. But the local politicians were very concerned. There were fixed budgets for this sort of project, and more used for this project meant less for projects elsewhere. They wanted to use the available resources efficiently.

Perhaps the costs could be kept low if the local government bought the properties anonymously, through confidential intermediaries (as, it was reported, the property firm did when buying houses in the neighbourhood, so as not to arouse suspicion). “But”, it was again asked, “is that a legitimate way for a government body to work? Should that not act openly? Can the result, however desirable, justify such a way of working? And how would people react when they discovered that they had been misled?”

Also, the acquisition costs would increase when it became clear that someone – no matter who – was systematically buying properties in the area. Some owners would ‘hold out’ for very high prices. They are legally entitled to do that, for they hold the rights of full ownership: it is for them to decide whether or not to sell. “If the property owner should refuse to sell for a reasonable market price, then surely the local government can use its powers to acquire compulsorily?” the local politicians asked. The local officials warned that the judge did not always approve applications to purchase compulsorily: that depended on how the relevant legislation was interpreted. Moreover, here too there might be questions of political legitimacy. Expropriation is the biggest possible infringement of property rights, and it should be – in the opinion of many – used only in the last resort. Can its use in this way in this neighbourhood be justified?

Such considerations apply to the costs of realising the plan by buying, selling, and improving properties. The returns would be the income from selling and / or renting the improved properties. The size of those returns depends upon the details of the desired land use. If it is the intention that the existing tenants be able to move back into their improved housing, the new rentals must not be much higher than the old rentals, so the returns will be low. If (some of) the existing residents would not want to return, should the housing be improved to a higher standard and sold for higher prices? That would change the character of the neighbourhood and reduce the number of cheaper houses available. Could the provision of social housing – there is none in the neighbourhood – compensate for this satisfactorily? And what about ‘creative enterprises’ in the old shops? They can afford only low rents. The topic of disposal prices raises questions not only about the financial efficiency of this approach, also about justice. Who should benefit from the improvements? The working group came back to this topic.

Then someone in the working group asked the following question. Just establishing a formal land-use plan might not be effective. If the local government were to try to realise the plan by buying and selling properties, that might be effective but not (financially) efficient. Could not both effectiveness and efficiency be realised if the local government invited one or two trusted property developers to do all the buying, selling and improvements, in close cooperation with the local government? Property developers are better informed about supply, demand and prices than the local government. Moreover, they would bear all the financial risks.

All sorts of objections were raised against this. How would the local government choose the property developers? And should the local residents not be involved in that choice? Who will represent the local interests? If property developers are involved at an early stage, will they not try to influence the content of the plan, so as to ensure a good profit for themselves? Property developers do not want the details of their commercial transactions to be made public, so they would want the local government not to publish financial information about the redevelopment. And local government should be transparent.

Then someone in the working group said: “If the local government tries to realise the plan by buying and selling properties, or by getting others to do that, is it necessary to go to the time and trouble (including all the prescribed legal proceedings) of making a formal land-use plan?” That suggestion was rejected for the following reasons. The local government should be accountable for its actions: it must be able to justify to the citizens its actions on the property market. But – was the response – that does not need a formal land-use plan. Surely it can be done with a proposal (an informal plan) approved by the local council and made public. True, but then consider the following. If the local government (or its agents) starts to buy properties in that location, that will stimulate financial interest in redeveloping the land there, so people will start to submit planning applications. If those are not in accordance with the land use which the local government wants, they cannot be refused without an approved and formal land-use plan showing that desired land use. A final reason for rejecting the suggestion was also a legal one. If the local government should want to use its compulsory purchase powers or other instruments of land management (preemption rights, urban land readjustment, etc.), the legislation might require that the use of those powers be justified as being necessary to realise a formal land-use plan.

The working group made an assessment of its conclusions so far. The local government should make a formal land-use plan, but that on its own might not be effective in realising the desired land uses. If the local government were to acquire (directly or indirectly) property rights in the neighbourhood, probably that would be effective. But would it be efficient? There are two aspects to that latter question. Could the aims for the neighbourhood not be realised more cheaply? You can crack a nut effectively with a big hammer, but equally effectively and much more easily with a small hammer! The second aspect is: could the resources which the local government would have to put into realising the plan – not just money for acquiring and improving properties, but the personnel costs also – not be used better (i.e. more efficiently) elsewhere? At this, the local representatives became very defensive. They wanted the money to be spent in their area. “How can anyone determine what ‘the best use’ of those resources is?” they asked. “That is a political decision. And we are determined to convince the local council to spend the money here.”

The working group had discovered also that the decision about which legal approach to take is not just about effectiveness and efficiency, but also about legitimacy. Narrowly: does the local government use its powers within the letter of the law? More broadly: does the local government use its powers within the spirit with which the legislators wanted the law to be imbued? And even more broadly: does the local government enjoy the trust of the citizens?

In the meantime, it had become apparent to the working group that it needed more information about the financial aspects of realising the plan by buying and selling properties. The local government officials were asked to investigate this more fully, and to report back. Their report was to be, at least initially, confidential within the group.

The report provided information which gave a new turn to the discussions within the working group. For exam...

Table of contents

• Cover Page
• Half Title
• Series Page
• Title Page
• Copyright Page
• Table of Contents
• List of Tables
• Preface to the Second Edition
• Preface to the First Edition (2006)
• 1 Why Planning, Law and Economics Matter
• 2 Property Rights in Land and Buildings
• 3 Planning Law
• 4 Citizens’ Rights in Spatial Planning
• 5 Law and Policy Effectiveness and Efficiency in Spatial Planning
• 6 Law and Economic Welfare in Spatial Planning
• 7 Law and Justice in Spatial Planning
• 8 Law and Legitimacy in Spatial Planning
• 9 Using the Law in Practice
• Index