As a non-economist I had to read it a few times to get the gist of what you were saying and I think the introduction of "air rights" muddies up what most people understand to be a "betterment tax". But that is just my opinion.
I will make a few other points.
When I worked for a LG who had a few Priority Development Areas within its boundaries it always struck me how neatly these PDA aligned to property ownership of what you coyly described as "connected" landowners, even if this did result in very odd shaped PDA boundaries.
But again, as a humble town planner I still don't know what is the ACCOUNTING benefit of having all these significant land parcels that obviously have some increased property valuation, but are left idle for 10 - 15 years before being fully developed. It boost their asset bottom line which in turns makes the company look very prosperous, but without actually being forced to do anything to realise this potential value. MAYBE something could be done around the ACCOUNTING rules to force this land to housing much quicker (e.g. only a small proportion of land that an be realistically developed in 3-5 years can be placed on the books at the inflated potential value and the rest remains on their books at the unimproved land value based on the existing zoning and not the potential zoning).
I have no disagreement with your central thesis that some financial (taxation) penalty could / should be applied to land that has been up-zoned, but not developed over some time. But putting on my planning hat, we regularly up-zoned land with the full knowledge that it won't be developed in the immediate short term (e.g. apartment building around nominated major centres), but will slowly and hopefully developed over the longer time. I gather you are just taking a small part of the profit away for this time lag, but I can't see it forcing this future supply coming to market any faster.
I have often toyed with the idea that we planners upzone TOO much land to allow for freedom of market choices. Again I have no problems with having choices around the city, but as a Council we should have a series of rolling plans that say - this area will be up-zoned for the next 3 - 5 years and after that, what hasn't been been developed reverts back to the original zoning (including all DA that have been approved, but not yet commenced in this time) and we move onto the next nominated area. Your proposal could fit into this model nicely, by adding a extra layer of financial incentive. These nominated areas will be mostly based on those areas that are the cheapest for Council to develop / redevelop in terms of infrastructure spend.
I appreciate the insights from a planner on the ground, Neil. Thanks.
Your last paragraph has an important insight. The co-ordination role of planning - i.e. facilitating a sequencing of development that de-risks development decisions and hence reduces development costs for individual developers - is a really important one, and it's arguable that excessive zoning headroom over too broad an area stymies this role.
In plain language, if developers can build everywhere all at once, but councils and state governments can't deliver infrastructure everywhere all at once, then each developer doesn't know when either the infrastructure or the private development by other developers might arrive to support the accessibility, depth of markets, local services, and nascent community that will give their own development value. There's a timing mismatch that increases holding costs and development risk and hence speculative delay in development.
Tighter zoning and clearer sequencing including via incentive mechanisms like time-limited concessionary DAs might provide for more orderly development, hence lower cost development, and more of it. I'd note that tax design, such as developer contributions that rise over time or vacant land taxes in areas designated for development, can support this.
Balanced against overly prescriptive planning needs to be any potential market power bestowed on developers by the process. But the main way market power is exercised is by delaying development, so a planning approach that contained incentives to develop in a limited window would by construction limit this.
As a further insight, I was working at the State Planning Department at the time when Infrastructure Charging as a deliberate and methodical planning approach was first mooted and being developed (around 1994/95). In the beginning it was a classical economic market based approach that included sequencing of areas and appropriate cost recovery if you developed out of sequence. In other word if you developed in an area that had minimal existing development infrastructure - then you could expect to pay a higher Infrastructure Charge (IC) and visa versa.
A year of so later I left the State Government and joined Logan CC, where a few year latter I was sucked back into Infrastructure Charging, from a local government perspective and the State Government's policy position still was not finalised. A long story short, by this time the market based approached and sequencing had dropped off the radar and the State Government eventually adopted the IC ($28k per lot) that our Council had adopted under the previous IC regime (Planning Scheme Policy). So this $28k per residential lot was applied all across the State and it didn't matter whether you were miles from development infrastructure services or in an area that had an abundance of development infrastructure services. In other words there was no financial disincentive to do out of sequence or isolated developments (e.g. Yarrabilba) because you all paid the same IC cost.
Now why the State Government chose to make such a radically different policy position (it was still a Labor Government), I will leave that to your imagination. But it does highlight the many and disparate factors that need to be aligned, but often work against each other, especially in the area of housing affordability.
Personally, I don't think the planning system is the MAIN cause of the problem to the extent that everyone is bleating on about it. Looking at Logan we had tens of thousands of dwelling capacity that still exists (i.e. under-developed according to its zoning), but Logan is not where developers want to see up-zoning for development - they want to see that happen in the middle rings of Brisbane. The Planning System does have some problems, but supply is, IMHO, not one of them. This is a multi-factorial problem that requires it to be addressed on multiple levels and across multiple sectors.
My original suggestion / dream is predicated on the basis of use it or lose it within a window of opportunity, rather than the traditional approach of zone it and it will happen. This is in itself a radical departure from existing thinking and law, so the chances of it happening are nil. My big thing is that development approvals have now become a tradable commodity. Spend a bit to increase the value of the property 20 fold and then it is yours to trade and on-sell as many times as the owner likes, without every having to do the actual development. Land use planning has been hijacked from being about the orderly development of towns and cities to now being a financial instrument.
"My original suggestion / dream is predicated on the basis of use it or lose it within a window of opportunity, rather than the traditional approach of zone it and it will happen. This is in itself a radical departure from existing thinking and law, so the chances of it happening are nil."
Spot on. To leave the opportunity unconstrained is to encourage land banking. The only other way to encourage expedited development is falling land prices and hence multiplying reduction in economic gain and that really does have a nil chance of happening.
I think many people with experience in planning understand betterment, but the movement for unproced upzoning as a housing policy is very broad now, and one fo the key arguments in that movement is that the policy change is "free" and that bribing existing property owners is good. We hope our dicussion papers and this article encourage a rethink of that position, and I think for many, the idea of selling airspace helps (I hope!) communicate that we are giving away space for free.
I don't think this policy will encourage faster housing development. There will be second-order equilibrium effects in asset pricing. But my point is that it won't punish building faster.
You are right that planners upzone too much to control where development happens and the sequence it happens. To do that, you must restrict building in some areas to get it in others. For me, the solution to this is to do active land policy - simply acquire the areas with a state developer, subdivide, and build or sell smaller lots ready for development. The Dutch do this and, outside the GFC, made a lot of money doing so. The ACT government does it now. I think there is definitely more scope for directly doing development rather than planning and hoping others build what is desired.
Seems to me that the imperative is to get live-able homes built at the lowest possible unit cost. Once built and occupied the value manifests. That is the time to start taxing via rates, income tax and capital gain. At the outset, if you want the backlog cleared go lightly on any form of taxation. You might even consider the provision of government land at a peppercorn rental for a period of time. The states do this for most forms of industrial development, why not do it for housing? You might consider public acquisition and aggregation of titles so that a decent parcel of land can be put together and have the option of re-forming the road and infrastructure network and enabling homeowners to access to work and shopping facilities within the development so as to make it more live-able. Give existing landowners the opportunity to participate as shareholders in the development. They may be rehoused in the process. Meantime, make available a 'courtesy house', just as you would a courtesy car when your car is being serviced.
All forms of zoning and town planning activities involve upfront cost, delay, and 50 shades of aggravation. There is the interest on the outlay on the land and the interest on the outlay for the build plus the costs attached to the provision of facilities like green space, communal gardening, parking, roadways, playgrounds.
Finally, why not keep the parcel of land so acquired under a single title so that the next round of development is easier. Don't create separate titles for each dwelling but build in incentives for people to look after their houses and be rewarded by having a share in the value that may accrue as the population grows.
Look at it from the point of view that the disincentives to development are currently too great.
Secondly, look at it from the point of view that unless you have a decent parcel of land to develop to create a walkable neighborhood, and reasons to walk to local destinations to work, school, shopping, services and recreation that will relieve you of the burden of vehicular travel to the greatest possible extent, you are not creating a live-able neighborhood, more than likely you will be creating a slum.
Finally, why not have the title to the property revert to the crown in forty years, at an agreed value, capital plus interest, so that the place can be renewed. Nothing is forever.
As a non-economist I had to read it a few times to get the gist of what you were saying and I think the introduction of "air rights" muddies up what most people understand to be a "betterment tax". But that is just my opinion.
I will make a few other points.
When I worked for a LG who had a few Priority Development Areas within its boundaries it always struck me how neatly these PDA aligned to property ownership of what you coyly described as "connected" landowners, even if this did result in very odd shaped PDA boundaries.
But again, as a humble town planner I still don't know what is the ACCOUNTING benefit of having all these significant land parcels that obviously have some increased property valuation, but are left idle for 10 - 15 years before being fully developed. It boost their asset bottom line which in turns makes the company look very prosperous, but without actually being forced to do anything to realise this potential value. MAYBE something could be done around the ACCOUNTING rules to force this land to housing much quicker (e.g. only a small proportion of land that an be realistically developed in 3-5 years can be placed on the books at the inflated potential value and the rest remains on their books at the unimproved land value based on the existing zoning and not the potential zoning).
I have no disagreement with your central thesis that some financial (taxation) penalty could / should be applied to land that has been up-zoned, but not developed over some time. But putting on my planning hat, we regularly up-zoned land with the full knowledge that it won't be developed in the immediate short term (e.g. apartment building around nominated major centres), but will slowly and hopefully developed over the longer time. I gather you are just taking a small part of the profit away for this time lag, but I can't see it forcing this future supply coming to market any faster.
I have often toyed with the idea that we planners upzone TOO much land to allow for freedom of market choices. Again I have no problems with having choices around the city, but as a Council we should have a series of rolling plans that say - this area will be up-zoned for the next 3 - 5 years and after that, what hasn't been been developed reverts back to the original zoning (including all DA that have been approved, but not yet commenced in this time) and we move onto the next nominated area. Your proposal could fit into this model nicely, by adding a extra layer of financial incentive. These nominated areas will be mostly based on those areas that are the cheapest for Council to develop / redevelop in terms of infrastructure spend.
I appreciate the insights from a planner on the ground, Neil. Thanks.
Your last paragraph has an important insight. The co-ordination role of planning - i.e. facilitating a sequencing of development that de-risks development decisions and hence reduces development costs for individual developers - is a really important one, and it's arguable that excessive zoning headroom over too broad an area stymies this role.
In plain language, if developers can build everywhere all at once, but councils and state governments can't deliver infrastructure everywhere all at once, then each developer doesn't know when either the infrastructure or the private development by other developers might arrive to support the accessibility, depth of markets, local services, and nascent community that will give their own development value. There's a timing mismatch that increases holding costs and development risk and hence speculative delay in development.
Tighter zoning and clearer sequencing including via incentive mechanisms like time-limited concessionary DAs might provide for more orderly development, hence lower cost development, and more of it. I'd note that tax design, such as developer contributions that rise over time or vacant land taxes in areas designated for development, can support this.
Balanced against overly prescriptive planning needs to be any potential market power bestowed on developers by the process. But the main way market power is exercised is by delaying development, so a planning approach that contained incentives to develop in a limited window would by construction limit this.
Thanks Tim.
As a further insight, I was working at the State Planning Department at the time when Infrastructure Charging as a deliberate and methodical planning approach was first mooted and being developed (around 1994/95). In the beginning it was a classical economic market based approach that included sequencing of areas and appropriate cost recovery if you developed out of sequence. In other word if you developed in an area that had minimal existing development infrastructure - then you could expect to pay a higher Infrastructure Charge (IC) and visa versa.
A year of so later I left the State Government and joined Logan CC, where a few year latter I was sucked back into Infrastructure Charging, from a local government perspective and the State Government's policy position still was not finalised. A long story short, by this time the market based approached and sequencing had dropped off the radar and the State Government eventually adopted the IC ($28k per lot) that our Council had adopted under the previous IC regime (Planning Scheme Policy). So this $28k per residential lot was applied all across the State and it didn't matter whether you were miles from development infrastructure services or in an area that had an abundance of development infrastructure services. In other words there was no financial disincentive to do out of sequence or isolated developments (e.g. Yarrabilba) because you all paid the same IC cost.
Now why the State Government chose to make such a radically different policy position (it was still a Labor Government), I will leave that to your imagination. But it does highlight the many and disparate factors that need to be aligned, but often work against each other, especially in the area of housing affordability.
Personally, I don't think the planning system is the MAIN cause of the problem to the extent that everyone is bleating on about it. Looking at Logan we had tens of thousands of dwelling capacity that still exists (i.e. under-developed according to its zoning), but Logan is not where developers want to see up-zoning for development - they want to see that happen in the middle rings of Brisbane. The Planning System does have some problems, but supply is, IMHO, not one of them. This is a multi-factorial problem that requires it to be addressed on multiple levels and across multiple sectors.
My original suggestion / dream is predicated on the basis of use it or lose it within a window of opportunity, rather than the traditional approach of zone it and it will happen. This is in itself a radical departure from existing thinking and law, so the chances of it happening are nil. My big thing is that development approvals have now become a tradable commodity. Spend a bit to increase the value of the property 20 fold and then it is yours to trade and on-sell as many times as the owner likes, without every having to do the actual development. Land use planning has been hijacked from being about the orderly development of towns and cities to now being a financial instrument.
"My original suggestion / dream is predicated on the basis of use it or lose it within a window of opportunity, rather than the traditional approach of zone it and it will happen. This is in itself a radical departure from existing thinking and law, so the chances of it happening are nil."
Spot on. To leave the opportunity unconstrained is to encourage land banking. The only other way to encourage expedited development is falling land prices and hence multiplying reduction in economic gain and that really does have a nil chance of happening.
Thanks for your comments.
I think many people with experience in planning understand betterment, but the movement for unproced upzoning as a housing policy is very broad now, and one fo the key arguments in that movement is that the policy change is "free" and that bribing existing property owners is good. We hope our dicussion papers and this article encourage a rethink of that position, and I think for many, the idea of selling airspace helps (I hope!) communicate that we are giving away space for free.
I don't think this policy will encourage faster housing development. There will be second-order equilibrium effects in asset pricing. But my point is that it won't punish building faster.
You are right that planners upzone too much to control where development happens and the sequence it happens. To do that, you must restrict building in some areas to get it in others. For me, the solution to this is to do active land policy - simply acquire the areas with a state developer, subdivide, and build or sell smaller lots ready for development. The Dutch do this and, outside the GFC, made a lot of money doing so. The ACT government does it now. I think there is definitely more scope for directly doing development rather than planning and hoping others build what is desired.
Interesting article but - the Green Belt is around Toronto, not Ontario. Would be like saying the Green Belt around Victoria when you mean Melbourne.
Ha! Thanks you. Corrected.
Doesn't Vancouver have an "Urban Containment Boundary"?
Seems to me that the imperative is to get live-able homes built at the lowest possible unit cost. Once built and occupied the value manifests. That is the time to start taxing via rates, income tax and capital gain. At the outset, if you want the backlog cleared go lightly on any form of taxation. You might even consider the provision of government land at a peppercorn rental for a period of time. The states do this for most forms of industrial development, why not do it for housing? You might consider public acquisition and aggregation of titles so that a decent parcel of land can be put together and have the option of re-forming the road and infrastructure network and enabling homeowners to access to work and shopping facilities within the development so as to make it more live-able. Give existing landowners the opportunity to participate as shareholders in the development. They may be rehoused in the process. Meantime, make available a 'courtesy house', just as you would a courtesy car when your car is being serviced.
All forms of zoning and town planning activities involve upfront cost, delay, and 50 shades of aggravation. There is the interest on the outlay on the land and the interest on the outlay for the build plus the costs attached to the provision of facilities like green space, communal gardening, parking, roadways, playgrounds.
Finally, why not keep the parcel of land so acquired under a single title so that the next round of development is easier. Don't create separate titles for each dwelling but build in incentives for people to look after their houses and be rewarded by having a share in the value that may accrue as the population grows.
Look at it from the point of view that the disincentives to development are currently too great.
Secondly, look at it from the point of view that unless you have a decent parcel of land to develop to create a walkable neighborhood, and reasons to walk to local destinations to work, school, shopping, services and recreation that will relieve you of the burden of vehicular travel to the greatest possible extent, you are not creating a live-able neighborhood, more than likely you will be creating a slum.
Finally, why not have the title to the property revert to the crown in forty years, at an agreed value, capital plus interest, so that the place can be renewed. Nothing is forever.