Market-based Urban Planning – the introduction

By Jan Tichý for the Austrian Economics Center

Although we see extensive market regulations today, the importance of markets for organizing society and resources is mostly clear to all politicians. Even socialist politicians do know this importance. They tend to regulate those more than the others do, but it always is a regulation through restriction. However, I would like to talk about one field that is completely upside down, where it is being regulated by permission. Where everything is forbidden until you get a permission to do it. And that is urban planning.

As we can see a huge increasement in world’s population and an increasement of people moving to cities, urban (or spatial) planning grows in importance. If you are not familiar with it, you may ask what urban planning is. Don’t worry, I will explain.

By definition, urban planning is technical and political process of determination how to use land. Pretty simple, isn’t it? There are decisions to be done how a specific area should look like, what it should be used for and last but not least, who should make the development. Urban planning is quite a wide area covering architecture, civil engineering, transport engineering, ecology and public administration. In practice, cities create master plans. Master plan is an extensive document that shall regulate all areas within the city. But usually it is huge amount of data and bureaucracy. Brno in the Czech Republic is no big city, only about 400 000 inhabitants, but the master plan is bunch of data that is about 40 gigabytes large. This is so large document that there is no person who could go through it alone. So nobody can even criticize it.

But what are the goals of urban planning? Most planning architects have very similar vision of right urban area. These visions were changing through history, from ancient times to postmodern urbanism today. Postmodern vision of ideal urban area is the one that:

• Encompasses all different types of land uses (residential, industrial, commercial, natural…)
• Avoiding contradictions. This means separation of specific types of land (eg. factory inside residential area)
• Technical, information-based process of decision, meaning very little space for market
• Thinking in long-time horizon, usually 10 to 20 years.
• Focused on this ideal, meaning all decisions shall be made to suit the plan

These are quite good, aren’t they? We might talk about this factors (and we will in later articles), but this is what architects and engineers are told to be right and good for everybody. Well, reality is a bit different. There are generally two questions we shall ask. Are these ideals right? And do they worth it? I will get to the technical part later. Today, I would like to focus on the second question, the economical one. Because price always matters. We all love driving our car on motorway, but we won’t build one to our farm. (Who will build the roads?!)

There are studies and surveys, mostly from the U.S., which talk about these costs of implementing these plans. In the affected areas, these studies shows 20 to 30 percent increasement of housing price. This is quite a high cost for nice neighbourhood. For some people this price increasement might be problem and for some not, that is natural. The issue is that in market environment people can choose what they prefer – price over quality or quality over price. With this regulation, you just make it impossible for some people to buy a new house. The other problem is the bureaucratic apparatus making these plans. Other surveys show that about 70 percent of the working time was spent not on actual planning, but on land-use permits. (I’ll get to these permits in later articles too). Strict zoning brings more expenditures to the inhabitants. In most western residential areas, no business is allowed at all. We see the purpose here, noise, pollution and traffic in residential areas are bad. But bureaucracy works differently. They don’t ask whether these effects will be present. For it, business is just business. There are specific cases of ‘compatible’ businesses like doctors or hairdressers not being allowed. So instead of walking to the doctor, you have to drive your car all the way down to the city. And that is so economical and eco-friendly, isn’t it?

In later articles, I will focus on all issues mentioned. I will try to convince all people reading that urban planning is a great tool, but in the hands of bureaucracy terrible. I hope all kinds of people will follow my articles, since I will be bringing different arguments – technical, economical, and political. Libertarians do not worry, old good Hayek including!