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III. LAND ECONOMICS

Land economics, like the other branches of the field, shows that free exchange within a system of private property rights leads to efficient resource allocation. The derivation of bid-rent curves and the demonstration that these can explain land uses and land values in urban areas was an early achievement in land economics. These devices are routinely used to teach students how scarce land is allocated and continuously reallocated in market economies. Just as markets allocate scarce resources in light of consumers' preferences, land markets allocate heterogeneous parcels of land to their highest and best uses in light of household consumption choices. It follows that these mechanisms maximize welfare (given that external economies and diseconomies from agriculture and urban development more or less balance out).. It also follows that abandoning these approaches in favor of command and control allocations is costly. "The dubious assumption that non-market mechanisms are equally or more effective than markets in allocating land to rural and urban uses raises serious questions concerning efficiency and equity." (Mittelbach et al. 1997, 45)

Circular reasoning is used to deny market logic. The American Farmland Trust identifies "prime" farmland as any land used for growing food, feed, forage, fiber and oilseed crops; "unique" farmland is "good for" growing vegetables, grapes and crops like fruits and nuts. The definitions are meant to settle the matter because current land use defines "primeness"; in turn, primeness is meant to determine what the land ought to be used for. Why bother with markets when "primeness" is decreed (even if misunderstood) and fixed and when resource uses are ordained?

There is significant concern over the loss of "prime" farmlands to urban use in California. In recent years, considerable amounts of farmland have been converted to other uses in a large expanse informally called Silicon Valley. The Economist (March 29, 1997, s5) recently reported that the GDP of the valley's 2 million residents was almost $65 billion, about the same as Chile. "Average pay in Silicon Valley last year rose by 5% in real terms to $43,510 ... Compare that with the figure for the rest of America which rose by less than 1% to $28,040. In the valley, workers are in such short supply that Cisco Systems, the leading supplier of Internet routers, has had to rent advertising space on billboards to find the 400 people a month it is adding to its payroll." No doubt, given the chance, land use planners would have prevented all this. They would have "protected" the farmlands that were used to create this bonanza. For example, Alterman (1997) argues that an Urban Containment Movement, as practiced in the Netherlands and the United Kingdom, is the only effective mechanism for preserving farmland. The big picture data for the United States, however, shows that in the ten states with the most prime farmland only 0.7 percent of the 1982 stock was developed in the decade 1982-92 (American Farmland Trust data, quoted in The New York Times, 1997). In any event, as pointed out above, the losses in agricultural land in many locations are more than offset by the shift to higher value crops, such as fruits and vegetables.

Those who would replace land markets do not understand them and /or they mistrust them. They do not understand planning because they are woefully ignorant of how they (or anyone) would go about discovering and predicting highest and best uses and allocating (and continuously reallocating) the uses of millions of parcels of land in some sensible way. Rather, they understand limits and prohibitions.

Of course, there are "externalities" in private land markets, but there are fewer of them where property rights are clear and enforced. The reduction of property rights favored by planners has the ironic effects of increasing "commons" problems and the likelihood of more externalities. There has been an attempt to assert the principle of "public property rights," but this is little more than an attempt to rationale the legitimacy of government interventions in land use, environmental and other conflicts.

Environmentalists frequently use farmland preservation as a buttress against adverse urban environmental impacts. Little attention is paid to the fact (most recently stated in a U.S. Environmental Protection Agency's testimony before the House of Congress Agricultural Committee on May 14, 1998) that agriculture is the biggest polluter, responsible for 70 percent of waterway pollution resulting from fertilizer use, animal waste runoff and erosion, and affecting 173,000 miles of waterways with negative impacts on aquatic life and human uses. These problems far outweigh urban-related water pollution (e.g. sewage plants, urban storm drains, air pollution deposits).

Many instruments to preserve farmland have been developed at the Federal, state and local levels. They include: urban growth boundaries; conservation and open space elements in General Plans; agricultural land reserves (see the next section) and other agricultural zoning devices (such as prescribing minimum parcel sizes for farms); farm subsidy programs (from agricultural price supports to water subsidies); property tax relief (e.g. assessing farmland at current income producing capacity rather than at potential highest and best use); right-to-farm laws which exempt farmers from law suits and other attacks because of agriculturally-induced environmental nuisances; conservation easements in favor of non-profit organizations and local land trusts; and either the outright purchase of development rights, usually with the aid of bond issues, or transferable development rights. Undermining the market is not very difficult in a highly regulated world.

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