Thursday, November 16, 2017

How to stop corruption in town planning

I spoke this week at the Australian Public Sector Anti-Corruption Conference in Sydney about how to tackle corruption in councils and in town planning generally.

My main proposal is to not focus on political donations, disclosures, or electoral procedures, but instead to remove the economic payoffs available from being corrupt. In other words, remove the honeypot and you will get rid of the flies.

In town planning, the honeypot is the $11 billion worth of new property rights granted through the planning system to selected landowners across Australia each year.

If councils didn't have this power to make millionaires out of some landowners there would be no reason to lobby them in the first place. So why not simply charge the market price for new property rights made available through the planning scheme? No more honeypot. No more flies.

Below is the paper I discussed. What I didn't discuss in detail was a politically viable implementation. After all, some landholders have recently bought development sites and paid a price to the previous landholder that reflected their assumption that their planning application would be costless (or come with just a small administrative cost). That is, the previous landowner has already been paid for the new rights from the planning system that they were given for free.

To ensure that these recent purchasers do not pay twice for the same new property rights - once to the previous owner, then again to the council or state government - there can be a short phase-in period of a year or so where development applications made during that period operate under previous rules. This will bring forward a lot of development by landholders who have recently bought development sites since there is now a huge cost to delaying development and construction. Their chance to develop under previous rules is not taken away at all. The time frame is simply shortened.

So it is win-win all around. Charging for new property rights is economically efficient and captures pure economic rents. It removes the honeypot that political mates swarm around. And its introduction will increase housing supply by bringing forward development that would otherwise be delayed by private developers seeking to drip feed new developments into the market to maximise returns.

Get my full conference paper here.

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