Working paper: Trade-offs in urban planning

Back in April, I had the opportunity to present a paper on the economics of urban planning at the New Zealand Planning Institute’s annual conference. The paper, which benefited from the support of my employer, MRCagney, and discussions with a menagerie of planners and other economists, is now available online for anyone who’s interested. (As is inevitable, some of the table headings didn’t come out quite right in the online version. Oh well.)

The aim of the paper was to illuminate some of the trade-offs – and unintended consequences – that can occur as a result of urban planning. It presents three short case studies that illustrate different aspects of the choices facing us in urban planning:

• Minimum parking requirements, which were aimed at managing congestion and keeping down parking search costs – but which actually managed to increase congestion, reduce the viability of public transport, walking, and cycling, and require us to use scarce land inefficiently
• Heritage preservation policies, which are attempting to balance the preservation of “aesthetic externalities” from nice old buildings with the process of urban change
• Opportunities for new development – is it possible to build affordable housing in areas where land prices are high? Can we just keep building standalone houses, or are higher density housing choices required?

As it’s a conference paper rather than a research paper, it focuses on pulling together some disparate perspectives on urban planning rather than evaluating policies and recommending specific approaches. If you’re interested in a brief, non-technical overview of the subject, give it a read. Here’s an excerpt:

I’d like to close by discussing one major trade-off we face: the choice between low-density cities and affordable cities. It is simply mathematically impossible to combine high land prices, low densities, and home affordability. In areas with high land prices – which we would expect to see in any economically successful city – we need to ask: would we prefer to have affordable housing or low densities?

We can think of real-world examples of places that conform to each edge of the triangle. It’s easy to find low-density, affordable housing in (say) Pokeno or Huntly, as land values are low enough to sustain it. But in inner-city Auckland, high land prices mean that we must choose between our desire for space and our need for affordable housing. We’ve resolved these trade-offs differently in different areas. In Ponsonby, we’ve preferred to maintain lower-density heritage housing, which has priced many people out of the suburb entirely. By contrast, building many apartments at all price points has allowed the city centre itself to remain affordable.

Some people argue that Auckland should aim to bring land costs down in order to improve housing affordability. In my view, this view ignores the market realities. High land prices are an indicator of urban success – they demonstrate that people and businesses want to be there. We may be able to lower them through, say, a deep and prolonged recession or years of net emigration. But it’s unlikely that the benefits of reduced land prices would justify the economic and social costs of doing so.

Furthermore, greenfield land supply alone won’t solve our problems. While land does tend to be cheaper on the edge of the city, households that locate there tend to incur higher transport costs. Previous empirical work has shown that higher commuting costs entirely offset savings on housing cost in fringe suburbs (Mattingly and Morrissey, 2013; Nunns et al, 2014). As a result, if we want affordable housing we have no choice but to deliver it in places that are accessible to employment, education, and amenities.

Fortunately, we have choices. Technological innovations – steel-framed buildings, indoor plumbing, and elevators – have freed us from the tyranny of horizontally. We have the option to build up, if we are willing to take it.

Finally, while writing this paper, I put a fair bit of thought into how economists, urban planners, and citizens in general talk about urban policy issues. In my view, many of the disagreements that we have when talking about urban policies are best thought of as differences in terminology, not differences in values. At the end of the day, most people would like to live in a city that gives them good choices about how to live, work, and play, and doesn’t waste too much of their time or money. But sometimes we talk about that in different terms.

One morning, I was lucky enough to run across a scene that illustrates how good urban policies can enable outcomes that different people may find pleasing in different ways. I took this picture on the Fort Street shared space, where a loading dock has been converted into a container cafe. They’ve slapped up a mural on the wall, put out a few chairs, and gone into business:

Now, as a dour, fun-averse economist I find this scene beautiful because it shows underutilised resources being put to higher and better uses. Multifactor productivity in action! An urban designer or architect may find it beautiful for the way it’s “activated” a blank loading bay as a people space. A passer-by may simply enjoy the way it looks, or be enticed to go in to try their coffee. Others may appreciate the employment opportunities it makes available.

All of which demonstrates one of the wonderful traits of cities: how their diversity and vitality can satisfy the needs and desires of many different people.

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