Land for Industrial Development

D. Adams, L. Russell, C. Taylor-Russell, Clare Taylor-Russell

• Publisher: Taylor & Francis
• Year: 2021
• ISBN:
  9781135159016
• Edition: 1
• Topic: Architecture
• Subtopic: Urban Planning & Landscaping

This book provides a detailed account of the processes of land supply, land exchange and land development for manufacturing industry. It has a practical case-study based approach which provides an understanding of the motives and behaviour of critical factors in the development process.

PART ONE

THEORETICAL DEBATES AND DATA SOURCES

DOI: 10.1201/9780203857700-1

1

LAND MARKETS AND THE NEEDS OF INDUSTRY: A THEORETICAL OVERVIEW

DOI: 10.1201/9780203857700-2

Of all the factors of production, land has been perhaps the least studied empirically. In contrast, a rich diversity of investigative work has been undertaken since the 1970s on the changing relationship of labour and capital in the production process (Massey and Meegan, 1982; Lloyd and Shutt, 1983). This has helped enlighten the wider debate about specific aspects of industrial change such as the apparent growth of new and small firms (O’Farrell and Hitchens, 1988; Mason, 1989), the spatial concentration of high technology industry (Breheny and McQuaid, 1985; Oakey and Cooper, 1989) and the global restructuring of production (Henderson and Castells, 1987). This expanding and detailed literature is informed, however, by only a very limited understanding of how the important processes of land supply, land exchange and land development contribute to meeting the production requirements of industry at the local level. Although the analysis of land and property markets sits at the fringes of both geography and economics, both disciplines have implicitly assumed that there is a smooth and automatic adjustment in supply to meet demand. Until recently neither discipline had challenged this assumption with detailed theoretical or empirical analysis.

This chapter will highlight the most salient points of recent theoretical debate on the operation of the land market. It will be shown that the neo-classical approach, which assumed perfect competition and profit maximization as the basis for industrial location decisions, has become tempered by an acknowledgement of the influence of nonpecuniary preferences and uncertainty by decision makers. On the supply side it has increasingly been recognized that demand, and its influence through the price mechanism, will not necessarily bring forward the land which industry may need. The motives for land ownership are several, the factors which influence supply are complex and an equilibrium may not be achieved — indeed the industrial land market cannot be viewed as a single entity but an interconnected series of submarkets. These refinements in the theoretical approach to the land market have involved discussion of the imperfections and constraints which influence market processes and outcomes. In particular, the literature has recently given attention to the role of the planning system, physical and infrastructural site characteristics, land ownership and valuation methods as impediments to the smooth operation of the land market. The debate has also begun to focus on the influence of such constraints on the various agencies and actors involwd in the development process.

The shortage of empirical investigation into the practical operation of land and property markets in the United Kingdom makes it extremely difficult to assess analytically how well markets cater for the space requirements of industry. The extent to which land and property markets influence, or even confine, the locational choices presented to manufacturers is not fully understood, but it is evident that the supply of land may be restricted by particular constraints. The severity of these constraints in different areas and the ways in which they may be overcome have been related to the processes of economic restructuring and in particular to the decentralization of manufacturing industry, or the ‘urban—rural shift’ (Fothergill, Monk and Perry, 1987). It will be important for the formulation of appropriate policies to ensure an adequate supply of land for industrial development that there is a better understanding of land exchange and development, and of the factors which constrain these processes.

A major study of industrial sites in the north-west of England has afforded an opportunity to explore these issues in some detail, drawing on evidence from 120 case studies. The geographic area for study was chosen in such a way as to represent a local land market with characteristics which would be replicated elsewhere in the country and the discussion will therefore have wider relevance to practitioners and policy makers alike.

1.1 LAND MARKETS AND INDUSTRIAL LOCATION

The empirical neglect of land and property markets has been encouraged by conventional theoretical perspectives which assume that these markets function in a perfectly competitive manner. Indeed, Evans (1985) notes:

As urban economics has developed over the last 20 years or so the assumption has almost invariably been made that the land market works smoothly and efficiently to ensure that each parcel of land is used by the activity which can pay the highest rent. Any possible departures from this norm have usually been ignored in theoretical analysis… (p. 133).

Underpinning this model are the assumptions that consumers act in a rational manner in economic terms, that there is perfect information and that supply automatically responds to meet expressed demand. More recent theoretical developments have suggested alternative approaches to industrial location decisions and to land supply.

1.1.1 Industrial location theory and the demand for land and property

Conventional industrial location theory derived from Weber (1929) and developed by Losch (1954) and Isard (1956), has assumed that firms behave in a rational and logical manner and are able to achieve their optimal location. Rational behaviour in location decision making was felt to be determined by the aim of profit maximization. While Weber considered that the least cost site was most likely to enable profits to be maximized, Losch preferred the location where demand was greatest. Isard introduced substitution analysis which allowed additional resource inputs to be considered within the structure of Weber’s basic proposition. Such neo-classical models depend upon the existence of perfect competition. When the conditions of perfect competition break down, neo-classical models of this type are unlikely to prove helpful in explaining industrial location decisions. Oligopolistic producers, for instance, may be as concerned to maintain market share as to maximize profits.

Subsequently Smith (1966; 1981) has theorized that firms will be prepared to locate at any one of a number of suboptimal points which lie within the ‘spatial margins to profitability’. This is because firms are unable to predict future events with certainty and are therefore unable to undertake all necessary calculations for all possible locations. The spatial margins are defined by the points at which total cost equals total revenue. The area covered by the spatial margins to profitability can be quite extensive, according to the limited empirical evidence available (Taylor, 1970; McDermott, 1973). The availability of information at the time of the decision is therefore likely to be critical in determining where firms actually locate within the spatial margins.

Behavioural approaches, however, concentrate not necessarily on profits, but on the priorities and characteristics of the particular decision makers as determinants of industrial location. An individual entrepreneur may well have a very different agenda in locational decision making than the managing director of a major public company. Within companies, production managers may seek locations which minimize costs while sales managers are likely to prefer those which maximize revenue. Prestige, stability and psychic income, derived from social, environmental and other nonmonetary factors, may also be important. Watts (1987) suggests that locational decisions may even be determined by convenience or proximity to the owner’s home.

Townroe (1991) contrasts decisions based on instrumental rationality, which seek the optimal location, with those based on procedural or expressive rationality. The latter may reflect social, historical and cultural factors and thus seek ‘the right location’, in the context of what is and is not possible. As Townroe states: ‘One feature of industrial location decisions that is very well established empirically is that the elements of risk and uncertainty are typically high, including uncertainty by the decision-maker as to the appropriate procedure of decision-making itself’ (pp. 389-90). Locational behaviour in such an uncertain environment can be seen as ‘satisficing’ in character, in that entrepreneurs seek satisfactory rather than optimal solutions. A satisfactory location will yield the level of profit which entrepreneurs can reasonably expect to achieve, given their knowledge and abilities at the time of the decision.

More recent theories of industrial location have thus abandoned the pretence of the optimal location and have acknowledged that locational decisions are ofte, I surrounded by mists of uncertainty and personal preference. It could also be added that once the assumption of smooth and efficient land markets is relaxed, then the optimal location, even if known, may be unachievable, irrespective of the price offered.

1.1.2 Land supply

Most locational tLoory pays insufficient attention to the processes through which land and property in fact become available to potential users. Land and property markets are not necessarily compliant. Locational choices can be constrained by market conditions. Indeed, the restricted availability of sites and premises rn ay well be a critical, if insufficiently acknowledged, determinant of in Justrial location. According to Evans (1985) there are a number of reasoi why land may be prevented from passing to the highest possible bidder. In practice, these undermine the conventional theoretical view of the operation of the land market. Evans draws attention to owners’ expectations and behaviour, to the cost of redevelopment and upheaval and particularly to the existence of planning controls. Each of these will now be examined in turn.

(a) Owner expectations and behaviour

Theoretical understandings of the land market have begun to widen to consider whether and how the individual preferences of landowners, and in particular their relative appreciation of welfare and substitution effects, might influence the overall supply of land. Within the recent theoretical debate involving Evans (1983; 1986), Wiltshaw (1985; 1988) and Neutze (1987), attention has been given to the extent to which the individual preferences of particular landowners can be accommodated in theoretical models of land supply. Evans, for instance, acknowledges that the reluctance of elderly couples to sell up and move at any price, or the high regard with which wealthy landowners may hold the amenity of their estates over and above any tempting offers received from developers, could be the kinds of exceptional cases where individual preferences are more important than monetary considerations. Wiltshaw (1985) discusses the extent to which land affords the owner satisfaction in a non-market use (for instance as a garden) and subsequently (1988) explains the extent to which non-land income is likely to affect supply prices. As soon as theory begins to take account of individual preferences in this way, it becomes much more difficult to construct an aggregate supply curve. Indeed, the entire debate has demonstrated that ‘a considerable amount of work needs to be done before the economic theory of the land market can be considered to be on a par with the economics of other factors of production’ (Evans, 1986, p. 530).

Goodchild and Munton (1985) have identified at least four motives for land ownership. As well as occupation, investment and making land available for others to use on a non-profit basis, some owners may hold land purely for the purpose of control. Such owners may wish to restrict or influence the future use of land so controlled for the benefit of other land in their ownership. ‘Land may be owned by industrial concerns or public utilities adjacent to their existing premises to permit expansion even if there are no concrete pt’ans to use this land’ (p. 78). This is illustrated by a recent survey in Greater Manchester which revealed that only 429 out of the 1425 hectares allocated for industrial development by the planning system were actually on the market (Roger Tym & Partners, 1989). Howes (1989) suggests that owners tend to keep land off the market when they are uncertain about their own future needs or where they are unaware of the likely marketability or value of the land. Roger Tym & Partners identified a distinct lack of up-to-date and comprehensive information about the industrial property market in Greater Manchester. Such information shortages are likely to contribute to owner uncertainty.

(b) Costs of relocation

Many firms are deterred from moving to more suitable premises by industrial inertia or the cost of upheaval. Inertia may be caused by potential disruption to production or by the fear of losing skilled and reliable workers. Often, the high cost of new building in comparison with the low market value of existing specialized premises will militate against relocation. As a result, as Fothergill, Monk and Perry (1987) argue: ‘firms remain in buildings and locations that would not have been chosen in the light of their current requirements and contemporary market signals’ (p.87). Furthermore, the built up nature of much of the urban landscape can inhibit the transfer of land from low value uses into higher value ones, as neo-classical theory might require. The cost of redevelopment is simply far too high. Firms wishing to expand into adjacent residential areas are discouraged from doing so by the cost and difficulty of acquiring numerous small plots of land from individual vendors.

(c) Planning controls

Howes (1989) contends that, because of substantial imperfections, land markets operate only at partial equilibrium. Supply and demand do not automatically equate. He suggests that supply is determined primarily through the planning system, while demand depends upon private sector action. This makes it extremely difficult to apply competitive market analysis to the industrial land market. As Ratcliffe (1978) makes clear:

In a mixed economy, however, the workings of the price...

Table of contents

• Cover
• Half Title
• Copyright Page
• Dedication
• Table of Contents
• Preface
• Acknowledgements
• Part One Theoretical Debates and Data Sources
• Part Two The Overall Pattern of Supply and Demand
• Part Three Agency Response to Supply Constraints
• Part Four Conclusions and Recommendations
• Appendix A Information sought for the 120 sample sites
• Appendix B List of case studies
• Appendix C Index to key features of the case studies
• Bibliography
• Subject Index
• Author Index