Jumping the urban growth boundary

Australia’s state and local governments rely on a variety of regulatory devices to limit suburban growth. One measure that has been implemented in all of Australia’s major cities and some towns (many within the past decade) is the Urban Growth Boundary or UGB.

 A UGB is a form of large-scale zoning whereby the government effectively draws a ring around a city/town and outlaws urban development outside of this ring. The resulting UGB thereby prevents conversion of rural land that would otherwise occur. Advocates of UGBs argue that they create more efficient and compact cities by preventing urban sprawl, thereby saving on infrastructure costs and protecting the environment. 

However, as I will show you by way of example, UGBs actually exacerbate sprawl whilst also helping to push-up the cost of land.

Taking the second point first – the cost of land – UGBs create an artificial scarcity of land by significantly reducing the level of contestability and competition in the land market. Faced with a reduced level of competition, land owners that are lucky enough to be located within the UGB are naturally encouraged to withhold land from the market in order to reap excess capital gains as the land market tightens. The inevitable result is higher land and house prices. Meanwhile, unlucky landowners located outside of the UGB are only able to receive rural value for their property, since it is banned from development.

International evidence on the impact of UGBs is conclusive. For example, in Portland, Oregon and Auckland, New Zealand, the differences in values between undeveloped land just metres from each other but across the UGB have been estimated at 10 times or more. Without a UGB, these values would be similar if not the same.

I haven’t yet found data for Australia comparing land values on either side of an UGB. However, as shown by the below charts, the appreciation of greenfield land prices in Australia has been significant due to artificial regulatory constraints. Put simply, land prices have been rising whilst block sizes have been shrinking.

The astonishingly high price of greenfield land in Australia has also been confirmed by RP Data (see below table).

A 2008 speech by the RBA’s Anthony Richards provides a good explanation of the detrimental impact that Australia’s restrictive urban planning/zoning systems have had on land/house prices.

In principle, the price of housing there [on the urban fringe] should be close to its marginal cost, determined as the sum of the cost of new housing construction, land development costs, and the cost of raw land. And in the absence of any restrictions on supply, the price of raw land on the fringes should be tied reasonably closely to its value in alternative uses, such as agriculture. So unless there has been a marked increase in the value of this land when used for other purposes, the availability of additional land towards the edges of our cities should have limited increases in the cost of housing there…

 …Australian land prices are quite high. For example, contacts in Dallas and Atlanta suggest that prices for new developments on the fringes of those cities can start around US$50,000 or less, for lot sizes that are typically several times the size of Australian blocks. Admittedly neither of these cities is coastal, but nor are they small: both are larger than Sydney and Melbourne, with Greater Atlanta having a population of 5.3 million and Dallas-Fort Worth with around 6 million people…

There are no doubt a number of factors that could be contributing to the observed level of land prices… One factor that has been widely mentioned is the existence of various constraints on land development, including growth corridors and boundaries. Another factor that has been mentioned is the existence of a range of government charges, including developer levies or infrastructure charges. More broadly, concerns have also been expressed that zoning policies and building approval processes have hampered in-fill development closer to the city centres.

Both economic theory and international evidence suggest that housing prices can be boosted by land usage policies (which can create artificial scarcity of residential-zoned land), problems with the complexity of the development process (which creates rents), and the fees and charges imposed on development. Accordingly, the fact that higher prices for housing have not resulted in a more significant supply response could be a reflection of various supply-side costs that have represented a wedge in the cost of bringing new housing to market…

On the first point, UGBs typically exacerbate urban sprawl because they encourage ‘leap-frogging’ of development to cheaper and less restrictive jurisdictions and into neighbouring towns. Put simply, UGBs are simply too crude a tool and ignore the economic behaviour of real people.

To highlight this point, consider the following extracts from an Age article, Melbourne Jumps its Urban Growth Boundary, published last year in reference to Melbourne’s UGB (established in 2002). I have added some google sattelite maps for context.

Developers are building large suburban-style estates as close as three kilometres to the boundary, marketing to metropolitan commuters while avoiding the infrastructure levy.

Meanwhile, thousands of housing blocks in regional towns are being sold as an alternative to the city’s high land prices, from Drouin in Gippsland to Wallan on the Northern Highway and Bacchus Marsh in the west. It is a span of more than 150 kilometres from east to west, a distance further than that from the CBD to Bendigo…

They include the 500-lot Jackson’s View estate in Drouin that is 40 kilometres outside the boundary and is being marketed as ”a hassle-free commute to Melbourne”…

About 21 per cent of Drouin’s current resident workers already travel to Melbourne for work, a recent Planning Department report found [map showing Drouin in relation to Melbourne below].

In Wallan, now just three kilometres outside the boundary that was extended in July, there are four new housing estates with plans for more than 5000 new homes in total. The developments are set to more than double the population of the town.

They include the 900-lot Spring Ridge and up to 3000-lot Wallara Waters, which are just ”a 45-minute train trip from the Melbourne CBD”, according to the developers [map showing Wallan in relation to Melbourne below].

  

Buyers are also leapfrogging the boundary in Moorabool Shire, where developer Devine is building a 1500-lot estate near Bacchus Marsh. It is about 10 kilometres from the extended boundary at Melton.

The shire’s chief executive officer, Rob Croxford, said the council was approving 100 new housing lots on average at its fortnightly meetings [map showing Bacchus Marsh in relation to Melbourne below]…

Macedon Ranges Residents Association secretary Christine Pruneau said such estates represented an uncontrolled expansion of Melbourne that made a mockery of the boundary…

Some shire councils were resisting unsuitable developments while others believed any growth was progress and were courting developers in order to collect more rates.

The Macedon Ranges Shire Council is seeking community feedback on its settlement strategy, which recommends dramatic increases in population for Gisborne and Riddells Creek, towns less than 10 kilometres beyond the extended boundary at Sunbury [map showing Gisborne in relation to Melbourne below].

ABS data released in March showed the fastest-growing local government areas in Victoria were overwhelmingly located just inside or outside the boundary of metropolitan Melbourne.

Meanwhile, another recent article in the Age entitled Pushing the boundary highlights some of the adverse impacts arising from Melbourne’s UGB and related planning tools, including higher land prices and increased speculative activity.

Supply and demand are quoted often in the debate over the cost of housing in Melbourne. Even with a surging population, surely expanding the urban area by 43,600 hectares would alleviate the problem and contain prices?

Yet land has never been more expensive. We have reached a defining moment. Research by the Oliver Hume Real Estate Group shows that for the first time in Melbourne’s growth areas, the price of land is higher than the building price. The median land price rose 6per cent from $212,750 at the end of the September quarter to $225,750 in the December quarter. The median cost of building a house was up from $216,097 to $218,825.

At the same time, the size of blocks is shrinking, down to 425 square metres in new projects. How can this be happening? Developers argue it is all about how much land is ready to build upon, having cleared the lengthy planning process through both local government and the state’s Growth Areas Authority. The authority produces precinct structure plans that are essentially master plans for communities — mapping out roads, schools, shopping centres, transport and the like. Witness the fanfare last month when the plans for two new suburbs, Greenvale North and Greenvale West, were released.

The original aim was an 18-month turnaround — but developers say the whole planning process can take between three and five years…

‘‘People say you extend the boundary today and sell it tomorrow. It just doesn’t work that way,’’ says the  Urban Development Institute’s Tony de Domenico.

For all the complaints about delays in planning, the talk of land banking — developers sitting on land to maximise prices — persists. In Tarneit, an agent’s board spruiking a four-hectare lot states it plainly: ‘‘Investors take note: land banking opportunity.’’

Developers  say it doesn’t happen: the aim is to get the land on the market as soon as possible. ‘‘Land banking doesn’t happen as much as people think,’’ says Andrew Sugiaputra, managing director of the Perth-based Golden Group that develops in Melbourne’s west. ‘‘Basically, we get product on the market as soon as we can … the faster we can get it to the market the more affordable it is for people, because we have less holding costs.’’

A rogue element has  crept into the development scene that could also be pushing up prices. Industry insiders say self-styled middle men are approaching land-holders offering to get a certain price for their land, then attempting to sell it on to developers at a mark-up.

At the core of this whole debate is the  concept of an urban growth boundary, and how it has been determined, with two revisions in less than a decade. Labor accepted the view put by developers that the boundary needed to expand to meet demand and keep housing affordable [referring to the June 2010 by the former State Labor Government to extend the UGB]…

Just to the north of Melbourne, between Kalkallo and Beveridge, sits Lockerbie station, 1121 hectares between the Hume Highway and the Melbourne-Sydney rail line. In July last year, it was brought inside the boundary, and by December, one of the nation’s biggest developers, Stockland, bought the land for a reported $300 million.

At a personal level, it was another case of the expanding boundary producing instant riches for the family that bought the bulk of the land in 1979 for $920,000. The family declined to discuss the sale.

For Stockland, the end land value will be about $4 billion, producing what will be Melbourne’s biggest urban development — a new suburb the size of Shepparton. The land will be acquired in staged parcels, with deferred payments, and will be brought to the market over the next 30 years. Yet Lockerbie’s inclusion in the boundary was no great surprise to close watchers of Melbourne’s development industry. In 2007, another developer, Delfin Lend Lease, lobbied the Brumby government to include Lockerbie in the boundary…

The new two-yearly review of the boundary will be conducted at arm’s length. [Planning Minister] Matthew Guy has left open the prospect that the boundary could  be brought back in some circumstances if a case was made.

Nevertheless, speculators are trying to guess what might happen next, buying land relatively cheaply outside the boundary in the hope of seeing its value soar.

And it’s not just Melbourne experiencing these kinds of adverse outcomes in response to its UGB. It’s the same story in the other state capitals. Take Adelaide, which established a UGB of its own in 2002 (note from the above RP Data land values table that Adelaide now ties Sydney from the most expensive land per square metre!). A 2005 paper from Policy Exchange explains the outcome:

In the words of Kieron Barnes, senior planning officer at Adelaide Hills council, “The South Australia Labor government created an urban growth boundary around Adelaide three years ago [2002] with the intention to stop the sprawl and to consolidate the city. But you could have guessed what happened then: People decided to move behind the growth boundary to places like Mt Barker from which they then commute to work in Adelaide [map of Mt Barker in relation to Adelaide shown below]. I was actually lucky to have bought my house there just before the growth boundary was put in place because after it was introduced land prices in Mt Barker soared.” How did the state planners respond? “Well, now they have created more growth boundaries around the smaller cities as well to stop this kind of leapfrogging.”

Talking about his own personal house preference, he admits that he likes having a large house and does not mind commuting to work by car. Asked whether that was not actually contradicting planners’ beliefs in consolidation and promoting public transport, he smiles: “It’s difficult for planners not to behave hypocritically when it comes to personal choices. Many I know live in big houses on large parcels of land with two cars that are not necessarily environmentally or economically efficient.”

Well at least Mr Barnes is honest. But it does raise the question: with UGBs significantly forcing-up the cost of land/housing, whilst failing to achieve their stated aim – more compact and efficient cities – why are Australia’s governments persisting with these and related growth management tools? Isn’t it time that our governments looked to the planning systems of other jurisdictions with a proven track record of achieving both housing affordability and stability (e.g. Texas and Germany)?

Cheers Leith

[email protected]

www.twitter.com/Leithvo

Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

Latest posts by Unconventional Economist (see all)

Comments

  1. Leith, do you agree that the goal of more compact and efficient cities is a good one? If so, the Germans seem to be doing a good job with that, and the Texans aren’t. I don’t think anyone wants to see Dallas-style cities in Australia.

    I don’t see how your UGB ideas apply to Sydney which has natural geographical boundaries.

    Finally, and most importantly, the biggest driver of sprawl is population growth. Policymakers are locked into a mindset where economic growth is impossible without population growth, and any attempt to slow population growth will lead to ‘capacity constraints’ in the labour market and will exacerbate the problem of the aging population.

    Every country faces these problems, and if you extrapolate the we-must-have-population-growth mindset to a global scale, its clearly a doomed philosophy on this finite planet. We need a new economic model that doesn’t require ever more people.

    • Population is indeed the key. Australia has real long term problems with regard to water supply (La Nina not withstanding) & one of the key arguments for a UGB relates to this & other natural limitations. A severe & prolonged drought, while not perhaps producing fatalities, would be far more damaging to the economy then a relatively short period of flooding. This is likely to be Australia’s future norm. It’s no good arguing for a “bigger” Australia for 3 reasons:
      1) Infrastructure limitations
      2) Business leaders advocating for more labour don’t have the joy of commuting (helicopters don’t count), which, if you look at London as an example, will become impossibly expensive & time consuming.
      3) Those who argue about the demographic time bomb ignore the obvious – who is going to provide for the next 30 million immigrants when they get old….
      For those who point out that we could spend more on infrastructure planning, please, look at the Federal, State & local government model we have. You’d be lucky if 5 cents in the taxpayers dollar actually did something useful. & no, I’ve got no easy solutions…

      • who is going to provide for the next 30 million immigrants when they get old

        The 40 million immigrants after that. Its insane, we all know its insane, but the answers are all difficult and over long time frames.

        A bit like climate change really. Short term opportunism wins over long term tough choices every time. Mind you, its hardly surprising for a country that makes much of its living from exporting coal.

        • Lorax. I agree with you on the folly of high population growth and hope to write an article on it later in the week. However, UGBs and related planning devices are very poor and indirect devices for dealing with such an issue as they create a raft of unintended consequences (e.g. lower housing affordability, social and intergenerational inequity, etc). If you want lower population growth, then take the direct and efficient route by lobbying the Government to drop immigration targets.

    • If Sydney has natural geographical boundaries, it does not need an urban growth boundary, then does it?

      A good piece on how the German system works is here.

      And yes, of course pro-migration + land rationing is an incoherent policy mix. But it drives up house prices and increases the relative value of the cultural and other capital of the inner city networks while dumping the costs on others. Watching them now complain about the infill policies which is the natural result of their preferred policy incoherence has a certain amusement value.

  2. Leith,

    Excellent analysis.

    Would it not be likely that the jumping of the UGB would tend to undermine its scarcity creation and bring prices to the marginal cost (or next best alternative use)? Because this is not happening there cannot be was very much of it. It would be interesting to trace the mechanisms that prevent local authorities doing just what some that you mention on the Melbourne fringe are doing.

    I like the way that the RBA says “contacts in Dallas and Atlanta suggest ,,,,”. Don’t they know how to use the internet to get that material?

    • True Alan. However, the towns that people are ‘leap-frogging’ to are also subject to restrictive planning/zoning and, therefore, land/house prices are only moderately cheaper there. Even so, the Age article noted that most of Melbourne’s growth had been “located just inside or outside the boundary of metropolitan Melbourne”. So significant ‘leap-frogging’ must be taking place despite the moderate land price differences. People seem to be voting with their feet and finding ways to circumvent Australia’s restrictive planning rules.

  3. I drove across Houston in the mid 1980s. It was awful. Miles and miles of hazy suburban sprawl. and now it’s even bigger!

    • Obviously Americans don’t agree with you Steven since they are moving to Houston in droves. And its not just the cheap housing that’s attracting them there. Houston offers excellent employment opportunities. Here’s some facts for you to consider about Houston and Texas more generally:

      *Site Selection magazine has named Texas #1 and Houston #2 (behind Chicago) for corporate expansions and relocations.
      *Austin, Dallas, and Houston top ranked in attracting young adults.
      * Texas ranked No. 3 for Best Places to Start a Business by Small Biz and Entrepreneurship Council.
      * Texas ranked #1 state for most Fortune 500 companies (Houston #3 city).
      *Houston ranked #1 top manufacturing city by Manufacturer’s News (Dec 2010).

      • This is more of a reflection on the low tax rates in Texas, mostly due to oil riches, than how desirable it is.

        And before you bang on about how many Americans are moving to Texas, can I just say that the number of people that like something has little to do with the quality of said object. I believe this superblog might refer to it as “boganomics”.

  4. Leith, any chance you could do an analysis of the recent MySchool 2.0 data? Love your work.

  5. It’s tiresome reading the same old arguments about housing shotages, land shortages, population growth, pent-up demand etc., etc.
    The only way to find out how much genuine demand is out there is to do away with all grants and negative gearing. I strongly suspect that all shortages and pent-up demand would disappear almost overnight and we could get back to a sane and sensible housing market where people would pay only what they could afford.

    • Agreed. We need a complete overhaul of housing policy in this country. That is, an end to demand-side stimulus (FHOGs, negative gearing, more sensible mortgage rules, etc) and more responsive supply. The demand side factors are well understood, but the supply-side drivers aren’t. That’s the purpose of these articles – to show the other side of the equation.

    • Many shortage-deniers strongly suspect that by changing a few laws about tax and dollars, appropriate and affordable housing will become available for all.
      However simply by considering the enormous expansion of the population and the miniscule expansion of the housing and other infrastructure they require, I STRONGLY SUSPECT that more supply is required.
      Keep up the good work Leith.

    • Don’t forget max 80% lvr, 20% cash deposit (no bs equity maaate), limits on how many properties one can own (2-3 tops) and higher interest rates (help savers not speculators).

      • Limits on property ownership just get circumvented (see the taxi industry). Higher interest rates also cut back on business access to capital, so is a blunt instrument.

        • The amount of circumventing depends on the quality of the controls – For example, it is hard to circumvent tax in Australia. Appropriate controls could be introduced to curb the amount of properties one can own – after all, there is a “shortgage”, right?

  6. There is simply no conclusive results of studies into whether urban consolidation and monocentricity result in more efficient use of resources; or whether decentralisation and mixed land use is at least as, or even more efficient.

    Very recently, a series of “summaries of research literature” have been completed by several teams of experts commissioned by the US NAHB; the overall summary is entitled “Climate Change, Density and Development: Better Understanding the Effects of Our Choices”. The separate summary papers are hundreds of pages long, for those who wish to scrutinise the findings at length.

    One important finding is that in “decentralising” cities (which appears to be a natural modern economic trend) intelligent provision of connector roads actually has a high correlation with reductions in vehicle miles travelled (VMT’s).

    Both “sides” of this argument appear to have a case, both sides can point out flaws in the other side’s literature; but it surely is a concern that taxpayer funded bureaucracy is now so heavily dominated by “Green” ideologically driven advocacy at the expense of truth and objectivity.

    Besides the “leapfrog commute”, papers by Alain Bertaud, Paul Cheshire, and Nicole Garnett (working entirely in ignorance of each other’s work, by the way) show that inflated land prices result in population density increases WITHIN UGB’s in INEFFICIENT locations further away from the CBD, and a SLOWED rate of density NEARER the CBD on account of land prices being unaffordable to all but the wealthiest.

    Paul Cheshire and his colleagues at the London School of Economics estimate the “inequality” effect of all this, to be WORSE than income inequality is in the first place.

  7. “I don’t think anyone wants to see Dallas-style cities in Australia.” Really? I agree those fortunate enough to own their own homes without cripplingly large mortgages would prefer everything to remain in a time warp…I’ve got my home in a nice suburb so please don’t bugger up my city with “uncontrolled” development. Fine for them but what about everyone else, where are we supposed to live and more importantly, at what cost? It’s the influence of this type of selfish elitist thinking that has driven the policy nightmare agendas we have today, the end result of which is the most expensive housing market in the developed world. We need honesty, vision and courage to change the policy levers that have have failed a generation of younger Australians. Qualities that are sorely lacking amongst politicians today, from both sides.

  8. It is a real shame that people in the USA are being forced out of pleasant climates by ruinous anti-human politics, and forced into places like Texas that while people-friendly in their politics, have truly ghastly climates. (But hey, no worse than most Aussie cities I suppose). It is a pity that California doesn’t just allow people to live there affordably and use less energy fighting climatic conditions than they have to when they are forced to move to Texas.

    But it is a pity that New Zealanders who have had a gutsful of semi-Latin American politics here, currently have to pay even MORE for houses in Australia than in their own bubble market. Sensible immigrants rent and wait for the crash. Even among Kiwis who have come home from Britain recently, every one I have met is renting and waiting for the crash; they know enough from their experience overseas, unlike local dimwits who still “believe” just like Californians and Irishmen still did in 2007.

  9. Hi Leith – you seem quote the median land price ad nauseum to illustrate the injustice of land prices on the urban fringe. The problem is, you are using the wrong metric. You should be quoting the 25th percentile land price median as this is far more relevant to land prices on the urban fringe.

    • Leith has pointed out that raw undeveloped fringe land prices are being inflated across boundaries by a factor of 10 or more. He has linked to 2 studies, one in Portland and one in Auckland; and quoted Anthony Richards of the Australian Federal Reserve at length. What more do you want?

      Who HAS the 25th percentile land prices? But I’d bet that they will show the same story. Do you seriously think they won’t?

      Fringe land (or any other “cheapest” land in an area), is like a “denominator” from which all other land values are derived via Ricardian location advantages. The factor from fringe to inner suburbs in an established monocentric city is usually around 10. (Further rises in value from there to the centre of the CBD are normal).

      Ironically, when fringe land is forced up in price by regulations, the conveniently located land is forced up also to such a level that FEWER people can locate there; this is the opposite to the normal effect of density rising at those locations. This is hard to understand, but it relates to the total INCOME available to fund the buying of land; the land prices have gone up but the income has not.

      Alain Bertaud’s studies on “The Spatial Distribution of Density” are being ignored by planners at the peril of our entire economies.

      Interestingly, more and more research is coming down in favour of the efficiency of the NON monocentric city, refer for example, to William Wheaton: “Commuting, Ricardian Rent, and House Price Appreciation in Cities With Dispersed Employment and Mixed Land Use”. This efficiency is because land values remain much lower across all quartiles throughout the city; “efficiency of location” is “democratised”; there are so many “nodes” of jobs and amenities, that the “premium” cost of locating near any one of them, is far lower than the “premium” in a rigidly monocentric city.

      A combination of monocentricity and growth boundaries forcing the price of land up, is “death” for a city on every level. 1) land price volatility and periodic spikes and crashes
      2) actual cost to businesses, of land and leases 3) workforce income demands through living cost pressures 4) pressures on demographics, intergenerational wealth transfers putting pressure on younger generations and reducing birth rates 5) reduced “churn” of land use, and increased incumbency advantage 6) diversion of capital from productive uses, to land price bubbles (it is typical for banks lending portfolios to “flip” from one-third mortages: two-thirds business lending; to the other way around) 7) reduced business start-ups (the major source of new employment) 8) REDUCED location efficiencies by households and businesses 9) REDUCED participation in agglomeration efficiencies 10) REDUCED social mobility and increased “ghetto-isation”. 11) REDUCED discretionary household expenditure on non-mortgage items, including on items that would benefit their children.

      • I wasn’t saying the 25th percentile would necessarily paint a different story, simply that the 25th percentile is a better metric of fringe land prices which is the “affordable” market that everyone is talking about. Its simply disingenuous to talk about the gap of affordability when comparing it to the broader median land price. Fringe land medians will nearly always be lower than wider medians and will illustrate that the affordability problem isn’t as large (albeit its still a problem mind you) as Leith keeps spruiking. My suggestions is simply to adopt what I consider to be a better metric so that the arguments are little more balanced.

          • Speaking for WA its available at http://www.landgate.wa.gov.au > Products and Services > Property Watch > Land Price Statistics.

            Fairly obviously the 25th percentile median tracks the regular median, so the best way to use this data is to look at the divergence or convergence between the two metrics. That will help tell the story of where fringe land prices are tracking on a relative basis rather than simply looking at the “headline” figure of X dollars.

  10. Leith, your question

    But it does raise the question: with UGBs significantly forcing-up the cost of land/housing, whilst failing to achieve their stated aim – more compact and efficient cities – why are Australia’s governments persisting with these and related growth management tools?

    can, I believe, be answered with just two words: stamp duty. While the situation persists that state and territory governments get a very substantial portion of their revenue from stamp duty, they will have strong incentives to keep land values as high as possible. While I hope that the forthcoming tax summit will canvas abolishing stamp duty, I fear it is a vain hope.

    • Agreed Alex. The states have a vested interest in forcing-up land prices in order to reap higher stamp duties and land taxes. Shame about the impacts on the younger generations and working class, who are wrongly being denied the opportunity of affordable housing.

    • There are other thoughts out there that suggest Portland (for example) has not failed to acheive its aim. Note, I am not talking about property prices here, just that some people think the city has largely acheived its objective of being a better city through the UGB – see for example research at http://www.sightline.org. Not saying I agree / disagree, just noting that other people think the UGB has other successes.

      • Portland has succeeded in forcing its population “centre of gravity” AWAY from the CBD. Refer to Alain Bertaud’s study “Distribution of Density”.

        It is not hard to understand why. Put yourselves in the shoes of young home buyers. The ONLY thing most of them can afford, is a SMALL “townhouse” further away from the CBD.

        Land values slope upwards from the fringe to the CBD. So does density, normally. But when prices lose their connection with incomes, the population density ends up running the other way. The prices CLOSER to the CBD are higher, but “number of transactions” in land is much lower. The price premium is related to perceptions of “how much more the location is worth” than fringe land, and the number of people who can afford this price, DROPS as the price of ALL land rises within the boundary.

        Hayek was SOOOO right about the “conceits” of planners and “unintended consequences”.

        Actually, cities with employment DISPERSION, low land prices, and “auto mobility” are going to economically “bury” Smart Growth dystopias over the next few years. Read my posting above.

        Australia, sorry, you are “Britain-ising” your economy. You cannot overcome the massive millstone you are putting round the neck of your economy by inflating urban land prices. Cities are the main thing that matters in economies.

  11. Has any one been to Houston recently? I drove through Texas two years ago, most of it was pretty down-n-out and not a place I’d like to live. Austin was the exception. I didn’t get to Houston, but part of the reason is people said not to bother.

    Love your work, but find the German model a better way to go. Berlin beats Houston any day!

    • If Australia adopted the Texas-style planning structure, it wouldn’t suddenly make us like Texas. We would still be Australia, but with more affordable housing. Just because I advocate the Texas model doesn’t mean I want Australia to become just like Texas (guns and all).

    • Agreed. Whilst Texas is held up as a model for affordable housing (using dubious examples of being #1 place for corporate relocations etc) there are plenty of government “concessions” or political incentives offered to corporates to locate there (most people know the reason why Houston is the NASA control station rather than somewhere near cape canaveral). So with big employers being encouraged to locate in Texas, naturally the workforce follows. Doesn’t mean people think its a fantastic place to live (I was in Dallas last year for quite some time, it was unbearable).

      Also remember that some some / many of the big “affordable” estates in Dallas (for example) were created in the first place by big corporates to house their employees – refer for example to Ross Perrot’s company EDS who built a whole “cheap” town for his employees.

      I’m not saying to disregard the Texas examples, but i do believe a deeper understanding is needed before using it as an apples-for-apples comparison to Australia.

      • PS. Your comment misses the point. I am not suggesting that Australia becomes Texas, rather that we adopt their planning structure. We’d still be Australia, but with more affordable housing.

        • Just be mindful that Texas’ planning policies are not a panacea for Australian land affordability. Texas corporations (often subsidised by local and state governments) artificially affect land prices because it is in their interest to keep land prices low for their workforce (otherwise they’d have to pay them more). As I’ve mentioned, Ross Perrot famously grasped this notion when he built Legacy in Texas to provide cheap housing for his employees of EDS. Addison Town Council did a more recent version of this by contributing $9m cash and built all the roads and parks to a private developer to bring on cheap land for big corporate employees. The project was specifically targeted at corporate employees. So again, this is not due to planning policies many bloggers “quote” here, rather its a business policy that is creating the cheap land.

          • PS are you honestly claiming that the bulk of new homes in Texas are ’employer subsidised’? Sure, there may be some limited examples like Perot’s estate, but the overwhelming majority are developer built, just like in Australia. It’s a poor argument you are making against Texas’ planning regime.

            Also, what about Atlanta Georgia – does it also have employer sponsored housing? How then has it also managed to keep affordability levels so high via relaxed planning on the back of booming demand (both through rapid population growth and loose credit).

  12. Leith, you obviously know my opinions on planning and prices, but holding Houston as an example necessitates an explanation of their 1980s bubble. It seems that in the 2000s boom prices were so low simply because they were still recovering from their previous crash – and you can’t beat a recent housing crash to dampen market sentiment and speculation.

    • Cam. Texas’ bubble was only mild and temporary. According to Harvard University’s median multiple (median house price divided by median income), Houston’s MM peaked at only 3.3 in the early 1980s, whereas Dallas’ peaked at only 3.5.

      Profligate lending can inflate house prices temporarily, even where there is liberal land use regulation. This is because even with liberal land use regulation, systems can get overwhelmed initially if there is a demand shock (as there was in Texas, with the Congressional liberalisation of loan standards in 1979). Moreover, a shock can also temporarily strain the production capacity of the construction industry.

      So yes there was a bubble in Texas. But it was modest and it was temporary due to its responsive planning system.

    • How cunning to discover one difference between Texas and Australia and then try to make out that explains the house price difference. A common tactic of shortage-deniers.

      By contrast Leith has written many comprehensive articles on the subject demonstrating the link very clearly and very logically.

      If you want far more evidence of the link between restrictive zoning and high house prices then read the demographia report. The restrictive areas are all expensive and the unrestrictive areas are cheap. Damn near conclusive.

  13. Leith, re your response above. Nope, I am not stating that “all” cheap land is due to government subsidies. If you refer to my earlier posts, you’ll realise that I am simply suggesting that Texas “planning” isn’t necessarily the panacea people are claiming. More homework should be done to better understand why the land is more affordable (not just universally claim that liberal planning is the saviour). My examples simply illustrate real situations where land has been artificially made cheaper not through a planning policy, but through a business policy. And its is more common than you would think (but again, I’m not saying its ubiquitous).

      • Before you sprout on about Georgia, you might want to study a little bit about the demographics of the place. There’s a lot of cheap housing there because there is a lot of poor people living there. Income inequality is much worse in Atlanta than nationally in the USA, and is predominantly divided along racial lines.

      • I’m not too sure about Georgia. Where are you obtaining Georgia land price data from? And is there a specific area you are saying is cheap? Savannah in Chatham county seems expensive at what appears to be around $235k average for land, Atlanta in Fulton county is even more expensive at what seems to be $300k average for land, or are you referring to just Georgia in general?

        Sure some countys are cheap, but some are not. So if you can give me an idea of where you mean exactly, then I might better understand. And yes, I realise I have quoted averages above not medians.

      • A pity we can’t use some more local examples of where relaxed zoning has created affordable housing in Australia.

        The trouble is that the restrictive zoning / smart growth cancer has spread throughout all the major cities and towns.
        I believe that Cobar has some reasonably priced land available.

        Perhaps the shortage-deniers could explain that.

  14. “Faced with a reduced level of competition, land owners that are lucky enough to be located within the UGB are naturally encouraged to withhold land from the market in order to reap excess capital gains as the land market tightens.”

    I.e., land banking? Wouldn’t this logic apply to developers as well as farmers? Most farmers are older as I understand it, their land suddenly being zoned residential would probably be a great incentive to sell pretty quickly and do something a bit easier for the rest of their working lives and put the money from the land sale into their superannuation.

    Also, it is my understanding that most of the undeveloped properties located within the UGB are large, i.e., only a relatively limited number of developers can afford to buy and develop them, which reduces competition, a condition which usually results in inflated prices for most things!

    The figures from RP Data on median lot price, are they the prices charged to owner occupiers by developers or prices developers pay to the original owner of the large greenfield site?

    It seems though that one of the biggest problems here is the fact that most of the jobs are in Melbourne. Current affairs type shows love to run stories about cheap houses in small towns, but they’re not cheap if you can’t get a job there to pay for them. Even within big cities like Melbourne, there are more jobs closer in, where it is seemingly harder to build new residences (either houses, townhouses or apartments) than in fringe locations.

    • Spot on Anna. The lack of contestability in highly regulated land markets provides landholders (be they developers, farmers or state governments) with the ability to drive up the price of land and/or land bank. This is very difficult to do in open land markets (i.e. those with limited regulatory and physical barriers) because of the threat of competition from other land holders. That is, it’s near impossible to ‘corner’ the market.

      • Jean Paul Katigbak

        To reveal the pros and cons of relaxed planning policies in different locations around the world, some people need to consider the true aspects of liberalisation of land-use policies, especially because they have to explain the current realities that affect ordinary people in different economies as socio-economic factors like increased competition in open land markets, income inequality and the need for new and better approaches to redevelopment are occuring in numerous places.

        It would be wise for advocates of land-use liberalisation policies to assess as carefully as possible the urban and rural town planning measures (including the Swiss/German local planning model) – and gauge the pros and cons of these measures to help the public reveal the merits of these planning policies.

        And finally, each of these local planning models has to be gauged especially in terms of reflecting the context of different countries.

  15. Jean Paul Katigbak

    Correction: I should have said that each of the local planning models (including the Swiss and German local planning models) as principles has to be gauged especially in terms of reflecting the contexts of different countries around the world, both in developed and developing economies.

    Another correction: it would be wise for advocates of land-use liberalisation policies to assess as carefully as possible the urban and town planning measures, including the Swiss and German local planning models – and gauge the real pros and cons of such measures to help the public reveal the true merits of these planning policies because each of them have to be well suited and appropriate to various countries around the globe, both in developed and emerging economies.