Are NIMBYs financially motivated or are property developers?

A puzzle came via twitter following the crazy story of RBA research claiming that if you remove planning controls, apartment prices will fall 42%.

I argued that it would be weird for property developers to lobby for policies that eroded the value of their products and send their housing projects broke.

Andrew responded as follows:


So we have two groups who apparently stand to benefit from tight planning controls if they do in fact increase prices, yet they are arguing opposite cases.

This is a genuine problem. How do I make sense of it?

The first thing I would do is break it down further. Homeowners are an investor-renter hybrid—landlord and tenant of the same property. Maybe we can break out renters and landlords separately and see if they lobby for different planning outcomes. The position of homeowners would then reflect them acting as their “renter” or “landlord” selves.

Survey research has shown that renters are just as likely to oppose rapid development in their neighbourhood as homeowners, perhaps even more so if we believe this survey.

“If a similar ban were proposed for your neighborhood, how would you vote?”

Given the consistent NIMBYism found among homeowners nationally, I expected homeowners to show stronger support for a ban on new development within their own neighborhood. Instead, only 40 percent of homeowners chose to support this ban compared to 62 percent of renters. In other words, 30 percent more renters supported the NIMBY ban than homeowners.

This gels with my experience in community groups. Renters play a large role. Investors/landlords not at all.

If tight planning controls increase prices, renters will be the worst off, having to pay higher rents. Yet they lobby in favour of these tight controls.

Landlords will be better off, but they do not lobby in favour of tight controls.

So if homeowner NIMBYism matches the behaviour of renters, not landlords, then we can say that NIMBYism is not financially motivated by homeowners looking to increase the value of their homes.

This goes against the conventional wisdom [1]

NIMBYism is part of what drives property prices so high. When opposition to local development means that homes can’t be built in useful areas, the remaining homes become scarce and extremely valuable.

So what’s the deal?

One way to reconcile this behaviour is to question whether in fact tight planning controls increase local rents and prices. My experience as a property developer is that areas undergoing rapid densification become more attractive and, if anything, increasing in value.

Some have argued that it is the risk, or variation of the outcomes, from densification that homeowners don’t like, hence their conservative status quo bias. Will the benefit of more local retail services outweigh the cost of extra traffic or not? This risk issue could certainly be part of the story.

Another resolution to the puzzle recognises that densification typically does increase local rents and prices but, unlike investor landlords, homeowners can’t realise any financial gains without selling and relocating.

Since they chose to buy and live in their suburb rather than an alternative area, they have a preference for the current density/amenity. Had they known they were buying into a high-density area that was not yet built, they may have chosen to buy elsewhere instead. The same logic applies to renters.

It would be a bit like someone coming along and offering to paint your car pink. Sure, maybe pink cars sell for more, but if I wanted a pink car, I would have bought one in the first place.

If NIMBY psychology is more like this, we would expect that development that complies with zoning codes to see little push back, as homeowners have reasonable expectations about what sort of development is planned for their area. But we would expect a lot of push back against development proposals that fall far outside planning codes. This is consistent with my experience.

In the end, I don’t think I am fully satisfied with any of these ways to reconcile the NIMBY and developer puzzle.

What is clear is that the story is not a simple one of NIMBYs preventing some local developments in order to increase the value of their home.

What are your thoughts?

fn. [1] The conventional wisdom is often wrong when it comes to property markets and planning.

This article first appeared on my blog, Fresh Economic Thinking.

Follow me on Twitter here.

Comments

  1. Ronin8317MEMBER

    It should read : “relax zoning control on the property I have land-banked, so I can drip feed it to the market to make even more money”.

    Seriously speaking, you don’t need any fancy economic theory or modelling. You only need to read the data of the Hong Kong property market for a real life example.

  2. Rezonings are very weird in Sydney Metro areas, you can have one side of the street zoned for 4 storeys and the other side strictly restricted to two story houses only. Those who have their land rezoned are happy. Those across the road are not. NIMBYS are just trying to drag everyone to their level (2 storeys) as others being lucky is unacceptable.
    Heritage listings and conservation areas are the most racist mechanisms to keep out undesirables.

  3. I think that NIMBY’s are generally against development in their area because they don’t want it to change. As opposed to trying to increase the value of their property.

    Also, developers are probably more likely to understand how they make money as it’s their business

    • Agree. As a NIMBY (I suppose) we chose to live in a low density area to raise a family and oppose the creeping densificaton that is going on in our area mainly through 2-storey houses jammed side by side via block splitting. Ironically, would quite entertain the idea of living in a higher density area once responsibility of raising kids is over (i.e. retirement lifestyle within walking distance of shops, restaurants, cinemas, beach etc). Also because we have kids who will need to get into a house at some stage, I actually want house prices to fall significantly. The uplift over the last 20 or so years made our mortgage irrelevant so now it’s all about the kids. Youth job and wages growth prospects are so poor they will need every help they can get.

    • Yep, I’ve been a homeowner for years in multiple spots and almost always opposed to development on the grounds of crowding, additional traffic, amenity etc. I can’t recall ever feeling like I needed my home to appreciate in value — what’s the point anyway, unless my home is the only home increasing in value, ffs?

      I can only imagine the negatively geared desperately wanting their IP to increase – for obvious reasons.

      • Yep. All those angrily bleating about nimbys might want to turn the question around. Why are they so keen to get into these areas and why have they stopped making nice areas? Trees, parks, space, backyards and some good infrastructure – it’s not bl..dy rocket science.

  4. I totally support the views and opinions that were stated for both owners and renters of an area. You chose to live there the way it is. Increase the density and it becomes at the very least full of cars both on the roads and parked on the streets, it becomes harder to move around even walking in some areas, more shops means more outsiders coming in also. At the worst, it becomes like where I rented for a while in Marrickville/Dulwich Hill, with so many unit blocks that it was hard to even walk down the streets due to the furniture/rubbish/soiled mattresses constantly on the grass verge….gehetto!!! One word YUCK!!!
    It’s sometimes as simple as that!!! It’s called qulaity of life in the surrounding areas where you live, very important!

  5. Chairman MeowMEMBER

    I think NIMBYism has evolved during “the boom”. Fremantle Greens voters used to oppose everything until the property boom hit its stride and they realised how much money they could make and they embraced subdividing their blocks. Consequently they oppose “high rise” development in Fremantle as “I support densification but its not 𝘢𝘱𝘱𝘳𝘰𝘱𝘳𝘪𝘢𝘵𝘦 𝘩𝘦𝘳𝘦”

  6. arescarti42MEMBER

    Planning controls increase the price of land in some areas (typically the suburban fringe), and reduce the price of it in others (well located inner city areas).

    For example, 400m^2 blocks of land on the suburban outskirts of Melbourne and Sydney might sell for $450k each while the farmland literally next door sells for $100k per hectare because it is on the wrong side of the urban growth boundary and can’t be developed. Similarly, a block of land in an inner city suburb might be worth $50m if it is possible to build a high rise apartment building on it, but only $1m if you can only build a freestanding house on it.

    If NIMBYs in well located areas wanted to increase the price of their homes, they would lobby to RELAX planning controls, not increase them. More likely, they value the lifestyle afforded by their existing neighbourhood, and are happy forego the potential price increase.

  7. City of Sydney has a great mechanism to deal with increased traffic impacts from higher densification. The council has maximum parking rates, a developer can choose to provide 0 parking with their development. It works because all the streets are timed permit parking. The new buildings do not qualify for permit parking.

    Existing residents don’t get impacted too much as there is little additional traffic generation

  8. It’s all a false binary.
    Both NIMBY’s and Developers benefit from the restrictions the only difference has to do with the exact time frame over which each group benefits the most.
    Now compare this outcome to a broader politically supported solution that delivers serious advantage to other regions of the state, thereby reducing house price pressure in our major cities and removing the need to develop/redevelop

    • I think you are onto something there.
      As far as developers are concerned they are not the sharpest tools. Developers hate councils/planning regs which give them heartburn without realising it is this very ‘impediment’ that gives value to their project.

    • “..a broader politically supported solution that delivers serious advantage to other regions ..”

      Surely no such solution exists – the CBD and inner suburbs will always be more attractive (and therefore expensive to live in) because closer to work, more amenities, shorter trips to the other side of town etc. The only exceptions are those cities where the commercial centre has effectively migrated away from the old CBD – Johannesburg, Detroit etc.

      • Actually most just care about where they live staying a nice spot. The financialisation of housing is a total pita.

  9. I am sure renters who oppose tighter controls don’t see it as something that will increase their rent. More likely they will see it as something that maintains the status quo.

    • You would think so — that’s the area I chose to live in and that’s the way I want it to stay. Seems reasonable.

  10. macaroni jewelerMEMBER

    At best high density housing is a burden on the people and infrastructure of the immediate area. Second best it devolves in ethnic slums in 20 years time.
    People don’t enjoy living high density, I am sure the author lives in a house with a yard, or at least aspires too.

  11. Renters and owners choose to actually live in a certain location, developers don’t. Councils granting permission to build a 10 story eyesore in a low density neighbourhood usually results in the developer actually building a 15+ story eyesore usually with inadequate parking, traffic management and infrastructure turning what was a nice friendly, local community into a noisy carpark conflict hell hole in no time at all. Councils don’t seem to understand that people that live in apartments do have and use cars, have kids that go to local schools, etc. but provide not planning to account for this.

  12. Fabian AlderseyMEMBER

    As some others have said, I don’t think most NIMBYS are “arguing for restrictions that increase the value of their land”. They’re arguing for restrictions which leave in place their amenity/ lifestyle/ whole reason for moving to an area with larger blocks/ distance from neighbours. The land values can fall to zero or rise to a squillion dollars, life hopefully goes on peacefully…

  13. Perhaps the lower support from homeowners than renters talks to your “investor renter” hybrid. A true homeowner would want the same as a renter – after all, they are both choosing a home to live in, just via a different mechanism. Thus, you would expect them to want similar things in terms of stopping over-development due to the impact on quality of life (now, probably accidentally, acknowledged by the NSW Government).

    But the investor side of the homeowner knows that development will probably increase the value of their property, allowing them to move up the property ladder if they sell (the true Australian dream). So there is resistance, up to a point, after which dollars take over and the landlord gains whilst the tenant has to move. The owner/tenant is one and the same, so the pain of relocation is offset by the ability to trade up and a reason to watch inane home improvement shows.

    The developers – well if they sell on, the ability to build more with less restrictions means more revenue, ceteris paribus, which makes sense to me. Of course, as occasionally mentioned on this site, ceteris paribus includes a steady deluge of people from overseas able to pump-prime demand. We’ll see in the next few months just how hard the government is willing to work to keep that part of the model functional. My guess is “pull out all the stops”.

  14. A nimby is just someone who understands the environmental and/or amenity value of the area they live in and therefore also understands how ill conceived or inappropriate development (usually banal overdevelopment) will degrade it.

    https://www.abc.net.au/radionational/programs/philosopherszone/backyard-ethics:-defending-the-nimby/9906484

    Rather than making more areas nice, it is more profitable to degrade an already nice area for profit. With the exception of the very short term or avaricious most would happily sacrifice price gain to keep the amenity. What’s the point of your place being worth more if you want to leave because the place has been trashed?

    • This is basically it. It’s not all financially motivated. Besides areas with great amenity usually are a lower risk, long term bet anyway.

      I see what’s happening to beautiful Greenfield land in Sydney and Melbourne, with projects that completely change and develop the area with a little dismay. People lived in suburbia typically for low density and to raise families, and in some outskirts to enjoy nature whilst having a job. Not to live in a fast paced city or concrete jungle.