Sunday, November 1, 2009

Population caps: Social catastrophe or sound planning?

My favourite lobby group, the Property Council of Australia (PCA), have attacked South East Queensland Mayors for starting debate about limiting population growth in the region through town planning restrictions.  The PCA's argument is that restricting development in a region has disastrous social and economic impacts. They wield the crossed supply and demand swords to argue that house prices will sky-rocket in areas with restrictive planning regimes.

Not surprisingly, their arguments are flawed.  Here's why:

The price of housing can only rise relative to housing in other areas by the value added by its location in a restricted planning area.  This may be a small transport cost, or premium for desirable suburbs.  Do you think median value of Brisbane homes would reach $1million while you could live at Ipswich or Caboolture for $300,000?

I would also suggest that the PCA's position is detrimental to the development industry in the long run.  As I have mentioned before, when town planning rules are changed to allow new areas to be developed, these areas are now in competition with existing areas for the finite demand for new housing.  As happened in Noosa, developers began to use the potential population cap as a marketing tool to exact a premium on property prices.  Although experience suggests that this premium may be more marketing hype than reality.

Also, I have yet to find a city or country that has a restrictive planning policy to cap population that has had disastrous social impacts.  Cities across Europe have adopted greenbelt planning controls to limit urban expansion, and there appears to be no significant social problems, but significant public support.  South Korea appears to have adopted a restrictive green belt in Seoul, which appears to have had net benefits.

My gut feeling is that the development lobby is creating a terrible public image for itself simply because they lack a thorough understanding of the economics at play.  There is money to be made with or without planning controls for a population cap, and it gives developers opportunities to be the first mover in emerging areas outside the capped region.

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