The Economics of Property and Planning

Future Value

Graham Squires

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000481600
• Edition: 1
• Topic: Business
• Subtopic: Real Estate
• Index: Business

This book introduces the interlocking disciplines of property and planning to economic theory and practice.

Unlike any other available textbook, The Economics of Property and Planning skilfully introduces the reader to the interplay between property and planning using an economic lens. As resources become scarce, there is a growing need for students to understand the principles of economics in property and planning, especially given the rapid social, environmental, technological, and political changes that are shaping places.

The book begins with an outline of key economists and economic problems, then resources and scarcity, before examining macro- and microeconomic factors at play in property and planning. Furthermore, this book covers a variety of topics, including spatial and locational modelling, fiscal approaches to redistribution, regeneration and renewal, and transport and infrastructure financing. There is also a particular focus on contemporary issues such as climate change, environmental limits to economic growth, sustainability and resilience, and affordable housing. This book also introduces practical evaluation tools and appraisal, plus a look at property and planning with respect to macroeconomic objectives, policy, and new directions.

With property and planning essential factors in economic thinking and doing, this book provides insight into what future places will look like in real terms and how they will be shaped by policy. Targeted disciplines for this book include Economics, Planning, Property, Construction, Geography, Environmental Management, Sustainability, Housing, Built Environment, Land Economy, Urban Studies, Regional Studies, and Public Policy.

1Introduction to future value

The economics of property and planning

DOI: 10.1201/9781003111634-1

Introducing the economics of property and planning

This book introduces economics (theory, practice, and techniques) to the interlocking spheres of property and planning issues. Both property and planning issues often view from either an ‘economics and planning’ perspective or a ‘property economics’ perspective. Beyond the separate property-planning application of economics, the real unique focus of the study is the interplay between property and planning using an economic lens. In doing so, we move towards a greater understating of ‘future value’.

To illustrate this interplay of property and planning in economics, we have many academics that have tackled economic issues in housing, planning, urban studies, land, regional studies, construction, and policy, all of which consider the planning-property nexus in microeconomics – such as the production, consumption, and distribution of property in the spatial planning framework. For macroeconomics, the wider open economy and globalisation consider property as capital, and this capital is shaped under a particular regulatory planning regime. Spatial planning considerations also closely align to property economic interests when considering locational modelling such as agglomerations of certain property sectors. Similarly, spatial and justice considerations in community and participatory planning often need to balance with property sector economic interests. Density and zoning economic considerations touch on planning-property economic examples such as affordable housing, heritage and conservation, green belts, growth boundaries, and building control.

The planning-property connection in economics would also engage with well-established fiscal studies in the field. Subsidies are an obvious example that deals with the interlinked property-planning instruments of planning gain, development contributions, impact fees, levies, community agreements, and value capture. Other intertwined property-planning economic themes include aspects of regeneration and renewal (e.g. balancing the process of gentrification and economic forces of bid rents), dealing with the infrastructure finance gap (e.g. through financially viable Transit-Oriented Development principles), and sustainable development (e.g. triple bottom line of zero-carbon buildings and land). Practical application of economics to the professions is important for the property-planning nexus, that is, application in terms of the multiple measures and appraisals that consider external costs-benefits in planning, particularly those that go beyond the internal property measures of profit and financial performance. With property planning in the realm of futurist thinking, we need to demonstrate what future places will look like in real terms and how they are shaped by policy. Plus, if we use economics as a lens in the planning of property, for issues such as climate change and inequality, we can uncover the real ‘future value’ to the environment and society.

In essence, this book deals with the economics of planning and development as a new and concise book for students and general audiences to quickly get to know the topics and allow for further reading. The timing could not be better for this book, particularly as property (land and buildings) resources become scarce despite planning goals. Even more stark is the need for students to understand the reimagining of economics and its principles that have given the rapid changes (social, environmental, technological, and political) that shape the planning of property. To begin meeting this need, we firstly look at the relevance and importance of the economics of property and planning. Secondly, there is an overview of the idea of ‘future value’ set against some of the concepts and theories covered in this book. Thirdly and finally in this introductory chapter, we outline the opportunity for policy and practice application in the economics of property and planning.

Relevance and importance

At the forefront of the economics of property and planning is the global effort to curb climate change and rebalance a widening inequality. A great deal of this effort will focus on the future of property in place and resources. Inhabited places are energy-intensive with concentrations of transport use, heating and cooling homes and offices, as well as economic activity to generate income. Urban places do not function in a separate silo to rural places and thinking needs to consider their symbiosis. For instance, the food and resources for sustenance will be heavily dependent on agriculture that will be deemed as rural in land use. As such, the resources in both planning and property, in shared urban and rural space, are vital to understand in economic terms.

As well as a contribution ‘to’ climate change, places around the globe are also vulnerable to the potential consequences ‘of’ climate change. These include an increase in the frequency of warm spells/heat waves over most land areas, a greater number of heavy downpours, a growing number of places affected by drought, and an increase in the incidence of extremely high sea levels in some parts of the world. Economic problems will be generated from these physical risks posed by future climate change, with some areas facing difficulties in affording to provide basic services following change.

With regard to rebalancing inequality, climate changes will affect water supply, physical infrastructure, transport, ecosystem goods and services, energy provision, and industrial production. At a more micro-scale, local economies will be disrupted and populations will be stripped of their assets and livelihoods. Disparities of income and wealth at a macro-scale can also be extrapolated with arguments that those poorer areas are doubly disadvantaged with a lack of wealth to mitigate against climate change whilst being subject to its damaging effects.

In understanding what the economics of property and planning entails, an overview of its importance as a subject and its relevance to both knowledge and practice will need to be determined. Place making and resource allocation in economics can be unpacked to demonstrate ideas around ‘future value’ in the mainstream disciplines of property and planning.

Concepts and theory – future value

This text on the economics of property and planning introduces economics to the interlocking paradigms of property and planning issues. Disciplines of both property economics and economics in planning have often tended to take a separate and insular view from each other – it is one intention of this book to unify such thinking as well as extending thought into this field. Whilst doing this, the text more pragmatically demonstrates what the economics of property and planning entails within theory, concepts, and practice. Furthermore, an introduction of techniques and tools within the subject will be outlined in order for the reader to use within both research and further studies.

Conceptually, the core focus of the book involves ‘future value’ of space and scale given the interest in buildings and land. Varying spatial scales will form the canvass in which discussion is expressed. This, for instance, involves analysis of a neighbourhood effects within a city, or develops analysis of the agglomeration of cities within a larger urban conurbation or metropolis. Within these geographies, the economic concepts to be unearthed are those that integrate a multitude of themes. Themes of issues attached to geographies include education, such as examining how educational attainment is distributed over space; or those such as housing, where analysis involves an exploration of how the value of a neighbourhood correlates to household income and wealth. We also look at how environmental resources will draw together both property and planning issues in the spatial context. For instance, the implications of de-urbanising and urbanising areas will be a multitude of needs and wants, that will have to be met if possible using a scarce available amount of environmental resources. An urbanising world city will have wants such as building materials and energy needs, these will be met in part or in entirety depending upon the availability of such resources – and thus the economic choices and decisions will play a significant role on how places develop.

Basic economic concepts for resource allocation as ‘future value’ are introduced that will be relevant to the planning, valuation, and management of shared spaces. Economic concepts to be explored for application on property and planning matters include key issues such as considering the limits to growth, and how choice is being played out within the built environment given the scare environmental resources available. With respect to scarcity and choice, economic tools can be applied to provide more technical measurements of property and planning issues. Examples of economic tools include the use of Cost-Benefit Analysis (CBA), and hedonic modelling that can provide more empirical evidence to support both arguments and decision-making in this field. Understanding and competence in these tools and models can aid in their use when applying to both general and specific case studies and examples. For instance, more general comparative CBA could demonstrate the common and differentiating features of introducing a road or rail bypass for an urban area, whereas the specific introduction of a housing estate to serve residential pressures on an urban or rural area could make use of a hedonic house price model that measures the dynamics (involving time) and the magnitude (steepness of change) of particular independent variables such as education and health in relation to changes in a dependent variable such as house price.

There are isolated constituent parts of what is meant by Property Economics and Planning Economics are defined and illustrated, whilst highlighting the common ground in which the two disciplines are intertwined. The concepts of space using Property or Planning are also introduced to provide clarity to ‘where’ the focus of discussion is being placed. This is particularly important as not only are processes operating in areas but there is connectivity between these areas (e.g. roads, rail-networks, airports) that have demands on resources. In considering these connectors, economic aspects can be attached such as how much and what value of natural resources (e.g. energy) are supplied externally to an area (e.g. a power station) is being transmitted and consumed internally by a particular densely populated city or region. Environmental resources as part of this systematic thinking are also introduced as a perspective in the subject – especially in terms of how the sustainability agenda operate in relation to places, plus further coherence in distinguishing between what is meant by the ‘natural’ and ‘built’ environment. For instance, distinguishing between urban green space (i.e. Parks) and green belts as the natural environment may be conceived differently, plus changes in their land use (e.g. to Brownfield) may render them sites that are no longer considered ‘natural’.

The appropriation of economics to both property and planning is no doubt complex and generates different and often vociferous opinions on what approaches ‘are’ and ‘ought’ to be carried out by economists. The economics of property and planning according to economists, both individually and institutionally, is included in this book. This outline of significant thinkers integrates both normative and empirical analytical dimensions. Normative statements are primarily non-falsifiable statements or value judgments of what should or ought to be – a normative statement could argue that rapid urban sprawl should be halted, as it is detrimental to sustainable development. Positive statements are more empirically driven to provide information that can be made falsifiable or tested for their basis in ‘fact’. In considering both normative and empirical dimensions, we can reach a clear understanding of ‘future value’, especially when drawing on well-ingrained paradigms of economics-planning looking at resource management and place-making, just as the economics-property paradigm looks at ‘real property’ as relating to (in)tangible ownership of land and buildings.

Policy and practice application

Data and information at a macroeconomic level of study can be harnessed, analysed, and used to influence decision-making. In this book, we look at these considerations by providing an understanding of macroeconomic objectives and policy tools that influence space and place. Key macroeconomic objectives that require tools for intervention within macroeconomic policy include Stable Growth, Stable Prices, Full Employment, Equilibrium in the Balance of Payments, Protecting the Environment, and the Redistribution of Income and Wealth. The measurement of some of these objectives is also explained and discussed, particularly if there is going to be a need for an appraisal, assessment, and/or evaluation of macroeconomic objective attainment.

Other economic forces that operate at the macroeconomic level are covered in this book, such as interest rates and exchange rates. These forces can affect the macroeconomic objectives (and be controlled) and hence need to be introduced with respect to areas and the resources that are produced and consumed. The demand for money to make transactions within a particular place will be influenced by the exchange rate for a particular nation. For instance, if commercial property is in high demand within a global city, the demand for the currency to purchase or develop in that place will increase. The exchange rate is therefore indirectly connected to the country’s level of business activity, often measured as a Gross Domestic Product (GDP) or Gross National Product (GNP). For interest rates, they are ultimately economic phenomena that relate to the trade-off between investment and saving. High interest rates would mean that there would be less borrowing and more saving, leading to less investment. This in turn would have implications for future growth if interest rates remained high. Planning and development in property for instance would be stalled with high interest rates and, therefore, have a deflationary effect on the growth of the places.

With regard to managing the macroeconomy, various government policies can be exercised as direct regulation or through monetary or fiscal policy. Regulation could be the direct imposition of a rule that stops urban development, such as the restriction of urban sprawl by the imposition of a green belt in planning law. Monetary policy can direct elements of how money is controlled through various mechanisms. Government policy could fix exchange rates to ensure certainty in money markets; it could adjust interest rates to affect investment and saving levels, or it could control the money supply by changing the number of notes and coins in circulation and therefore affect the quantity and value of the currency. Fiscal policy is concerned mainly with taxation and spending levels by the government in order to direct production and consumption. As a fiscal example when applied to space and zoning, the incentivisation of economic development in a zone through the lure of tax breaks is seen as one fiscal measure example – although the wider costs (public, private, and cooperative) of such development are debatable.

An understanding of whether the tools are being correctly applied can be realised in policy and practice. The core element of the economics of property and planning is an exploration of spatial models and concepts that have taken an economic element in their explanation. Spatial models can draw on various development models, such as ribbon development where housing has developed along ribbons of transport infrastructure such as roads or development in the pattern of concentric rings that formed one of the earliest theoretical models to explain spatial-social structures. Demonstration of spatial modelling will enable study in this text to connect with environmental resources that have enabled spatial growth to expand, contract, or be constrained. Issues of sprawl are particularly important to these spatial developments and can be expanded in understanding such growth in relation to the strength in development due to some places being clustered in close proximity – this will involve ideas such as agglomeration and polycentric economies.

As well as conceptualising space and its connection to environmental resources, the study of specific sectors and land uses is important for understanding economic application in property and planning. More in-depth study of the housing sector for example will bring forward economic issues in the supply of housing such as the rise in building carbon-neutral homes. Housing is also expressed in hedonic-house price methods that demonstrate price change over space (e.g. for a neighbourhood or city) in relation to other differentials in income, type, quality of property, and the population.

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