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Market-Oriented Planning: Principles and Tools for the 21st Century

Samuel R. Staley
Lynn Scarlett
Reason Public Policy Institute
3415 S. Sepulveda Blvd., Suite 400
Los Angeles, California 90034



Twenty-first century planning will need to incorporate the evolutionary and dynamic aspects of community to be successful. This implies accepting and integrating the fundamental role markets play in allocating resources in a market economy. Urban planning and land-use regulations thus need to adopt market-oriented principles and concepts that build upon a vision of communities as constantly evolving and recognize the role markets play in meeting consumer expectations and preferences. The paper presents several practical recommendations for planners and planning that flow from a market-oriented planning approach.




At the national and macroeconomic level, policymakers have recognized the importance of markets for organizing society’s resources efficiently and productively. Indeed, debates over national industrial policy were resolved almost a decade ago as economists and policymakers recognized the superiority of markets over planning in national economies (Norton 1986; Lavoie 1985; Kendrick 1984). However, at the local level in the United States, markets are still often viewed with suspicion and skepticism. This suspicion is evident in land-use planning as conceived and practiced at the local and regional levels.

Under contemporary urban planning and zoning approval processes, virtually every major development is subjected to the vagaries of the rezoning process and the uncertainties associated with a legislative review at the planning board and the city council level. In many cases, the planning process creates unnecessary costs and delays, and inhibits valuable investments in land as communities evolve and grow over time (Nelson 1989; Seigan 1990). Modern planning tools often rely on a static concept of community and adopt a resource allocation process that presumes the future can be determined reliably and controlled by local and regional governments. This limits the ability of communities to adapt to changing needs and preferences. Unfortunately, planning theory still has not integrated market-oriented thinking into its approach to urban development and land use.

This paper presents an alternative paradigm for urban planning that incorporates the uncertainties, vagaries and evolutionary aspects of community development. It provides a preliminary set of general guidelines for integrating market-oriented thinking into a general framework for growth management and development control. The next section provides a general overview of the practice of urban planning, particularly as it relates to the U.S. and the recent trend toward regional and statewide planning. The third section presents as overview of what an alternative, market-oriented planning (MOP) model might look like. Section four outlines general principles that would underlie MOP. Section five extends these principles into practical policy recommendations for developing a MOP system. Section six concludes with a brief summary of the direction urban planning will need to go in order for it to complement markets rather than try to supercede them.


Urban planning is taking on an increasingly prominent role in urban development and land-use as planners attempt to extend this influence to the regional and state levels (see Stein 1993). The cases of Oregon and Florida, in particular, are lauded as examples of "effective" statewide planning because they feature strong, centralized control over land development and effective enforcement of state planning goals. The catchword, notes one observer of the growth in regional planning, is "consistency" (DeGrove & Metzger, 1993, 6): cities, villages, and townships are required by law to create master plans (usually with 10 to 20 year time horizons) that are consistent with the planning goals and objectives established by the state.

A crucial tenet of contemporary growth management is that markets need to be guided by the public sector to maximize the public interest. This is most evident in the ongoing debates over urban "sprawl" and farmland preservation. Concern over farmland preservation was one of the primary reasons Oregon implemented regional planning and urban growth boundaries (Howe, 1993, 61-75). Concern over sprawl was one of the primary reasons Florida adopted its statewide growth management system in the mid-1980s (Holcombe 1990; Ewing 1997).

Most planning architects envision an "ideal" plan as one that is:

  • comprehensive, encompassing all types of land uses (e.g., residential, commercial, industrial, and open space);
  • internally consistent, to avoid contradictions such as accommodating commercial development in a residential community;
  • rational and information-based, leaving little up to the spontaneous evolution of the market or community;
  • future-oriented, with a long time horizon, often 20 or more years;
  • goal-oriented, with specific priorities, to identify trade-offs and encourage political decisions over future development.

Moreover, the ideal plan would steer otherwise unfettered private activities into "socially useful" (however defined) directions.

While planning ideals are lofty, reality has diverged from those ideals. One indicator is the cost of implementing the plans. Surveys of the impact of zoning and other land-use controls suggest local regulations add 20 percent to 30 percent to the cost of housing (Shlay and Rossi 1981; Karlin 1982; Katz and Rosen 1987; Lillydahl and Singell 1987; Atash 1990). Moreover, planners are so absorbed by the "business of planning"--the implementation and enforcement of the master plan--that they rarely have time to focus on larger issues such as strategic planning. A survey of 178 California cities, for example, found that land-use permit processing and rezonings accounted for almost 60 percent of planners’ time (Dalton 1989, 156). Planners spent less than 10 percent of their time in general plan preparation. Hence, small, unobtrusive uses can be frozen out of development because zoning codes and comprehensive plans are not updated to reflect contemporary trends and realities.

In one case in a Midwestern suburb, for example, a veterinary clinic that would have served small domestic animals on an outpatient basis was prevented from moving into a community because local zoning would not accommodate a change in use. The preferred property was on a major traffic artery leading into the city’s historic downtown. The building, however, was a home and the property was zoned residential. Community growth and evolving land-uses along the corridor reduced the viability of the building as a residential use. However, the community’s zoning code would not allow the small, unobtrusive commercial use of the property as a veterinary clinic without also creating legal entitlements to develop the property for more intrusive uses such as video or convenience stores. Although this particular property would likely not be suitable for those particular uses, shortages of land availability for those uses (also a byproduct of zoning) may well have encouraged the redevelopment of the residential building for more intensive, high traffic purposes. As a result, the planning board rejected the rezoning request. The community lost a viable business that would have maintained the residential character of the neighborhood and the property owner (a retiree) was unable to capitalize on the full market value of his home.

Of course, urban land-use rules and plans come in many forms. They range from the simple--zoning ordinances that set forth broad and general land-use designations such as "residential," "commercial," and "industrial"--to the complex and highly prescriptive. For example, by the 1980s, New York City had added over 2,500 amendments to its zoning laws, which had received no comprehensive overhaul since the 1950s (Staley 1994,47; Salins 1993, 40-9). Plans also run the gamut from simple zoning rules to long-term and highly detailed, top-down general plans.

Nevertheless, planning rules are rarely developed within a market framework or context. More than a decade ago, planner Lloyd Rodwin (1981) recognized the ability of markets to organize and direct development activity in a productive and efficient way relative to urban planning. "In short," he wrote, "it does not take great insight today to see that, however inadequate the market may be, there is no reason to suppose that urban planners will necessarily do a better job, at least in the short or intermediate term. This reality of the inadequacy of planners and their tools offsets the other reality of the inadequacies of the market and price mechanism." (230)

A more telling insight on the importance of markets in urban development comes from Robert Cervero. Cervero argues that allowing people to live closer to their jobs, or bringing jobs closer to their homes, could mitigate air pollution and congestion. In a more recent analysis (Cervero 1996), he analyzed employment and residential patterns in the silicon valley to determine whether the "jobs-housing balance" was materializing. In general, he observed, the San Francisco Bay Area experienced a "general trend toward balance" attributable largely to "jobs moving to labor markets" (506). Imbalances worsened in cities with a job surplus since "housing capital generally did not follow jobs. . . . These outcomes, I conclude, are more a planning failure than a market failure. Notably, many well-to-do, job-surplus communities have restricted housing growth for either fiscal or exclusionary reasons." (506-7)

Many planning practitioners are beginning to recognize the limitations of planning as a discipline and profession. Even Oregon is beginning to feel the repercussions of regional planning as housing costs climb to record levels. These costs are in part a result of planners prohibiting development beyond arbitrary boundaries established by state and regional planning agencies (Mildner 1998).

Most U.S. ventures into land-use planning have experienced several common pitfalls. Altshuler’s (1994) taxonomy of these problems is useful as a summary.

  • Decision gridlock: current planning processes have often fostered delays, high regulatory costs, and litigation in response to the perceived erosion of rights to use property. Sometimes property owners are not permitted to develop their property at all because of local moratoria on building permits. At other times, approval can take years and include public referenda on the project.
  • Perversity: the planning process and zoning criteria sometimes result in unintended consequences such as unaffordable housing, increased traffic congestion, and loss of open space. These results perversely have occurred even when plans were designed to improve housing access, reduce traffic, and create open space. This is evident in Portland where the urban growth boundary has put upward pressure on prices by restricting the supply of developable land and city and regional planning authorities are now evaluating affordable housing strategies (Mildner 1998).
  • Incoherence: problem boundaries often don’t match jurisdictional boundaries, leaving few opportunities to limit spillover effects among communities. For example, Joel Garreau (1991) has described the emergence of some 181 "edge cities" over the past several decades, many of which do not lie within a single legal boundary.
  • Mismatch between static plans and dynamic economies: visionary end-state plans of the 1960s, 1970s and 1980s have failed to anticipate what the real world of the 1990s looks like. Planners failed to anticipate such changes as the feminist revolution and the emergence of dual-income households, the computer revolution, and workplace transformations into horizontal and often highly mobile organizations. Also unanticipated were just-in-time inventorying, telecommuting, and warehouse retailing, among many other changes in economic form and content. In addition to these shortcomings, modern planning has also spawned an unbounded politicization of decision-making regarding land use. This is because zoning confers development rights on property irrespective of neighborhood impacts and other potential nuisances (Nelson 1989; Fischel 1985). The example of the veterinary clinic is a practical reminder of how compatible uses can be rejected when local zoning confers legal development rights to other uses that might be potentially damaging to the local neighborhood without alternative recourse.
  • Zoning has effectively nullified private property rights with respect to land development: the decision to develop land is made through a legislative process. When land is developed through zoning, notes land-use lawyer Bernard Seigan, land-use decisions will be made politically. "Almost everyone except those who will directly benefit from the development, such as potential homeowners, tenants, and shoppers, can be expected to enter the fray," he observes (Seigan 1990, 154). As spheres of autonomy made possible by property rights have eroded, common law rules regarding rights, responsibilities, and "nuisance" protection have been replaced by statute law and land-use decisions by referenda, political jockeying, and majority rule. The prescriptive focus of plans, zoning, and other land-use and construction ordinances have invited battles over building details. In some cases, development plans have been rejected by planning boards because proposed houses did not have the right proportion of brick, used too much stucco siding, or could potentially increase traffic volumes. (Staley 1997, 124-83)

Importantly, despite these pitfalls and shortcomings, zoning and local planning serve important purposes. Initial zoning ordinances were justified on the impacts of nuisance uses on property values. Commercial and industrial uses could potentially create negative spillover effects that would reduce the value of residential properties and erode their quality of life. Zoning, it was argued, could mitigate these impacts by separating land uses. Zoning’s pervasiveness -- almost all major cities have zoning and comprehensive plans in place -- can be attributed to common concerns over nuisances, the political benefits of conferring development rights through a legislative system (see Clingermayer 1993), and widespread belief that central planning could solve urban problems by regulating land use and urban design.

To avoid the pitfalls of modern planning and zoning, an alternative must be proposed, debated and evaluated. The following sections present a vision and outline of an alternative, more market-compatible planning system.


Twenty-first-century planning will need to incorporate, explicitly, the evolutionary and dynamic aspect of communities to be successful. This implies accepting and integrating the fundamental role markets play in allocating resources in a market economy, including land. Thus, urban planning and land-use regulation must adopt market-oriented principles and concepts before these processes can realize the goals and objectives of planners. Essentially, market-oriented planning (MOP) allows market decision making to determine the general outline, pace, and details of development. The role of government is limited to providing a general framework for market adjustments and adjudicating disputes when conflicts arise among property owners. MOP does not pre-empt or foreclose future development paths and options.

MOP has a few core principles that provide a general framework for developing specific recommendations for local planning practice. The MOP paradigm, at its core, builds upon a vision of communities as constantly evolving and interrelated sets of institutions. This vision also implies an acceptance of uncertainty, embracing change and innovation as a fundamental component of city building.

Communities and economies are dynamic and complex. Increasingly, economic development comes from leveraging knowledge and providing personalized and specialized service. Entrepreneurial activity is constantly re-creating the world according to many personal and diverse visions. Innovation and resilience to changing economic and personal circumstances are keys to economic prosperity in a dynamic, global economy. Often, these innovations are antithetical to the basic principle of planning: future-directed decisions about community needs. The microchip, rise in dual income families, and telecommuting have all transformed the community in ways unanticipated by the most knowledgeable and experienced urban planners of the 1950s, 1960s and 1970s. Zoning codes and comprehensive plans, for example, still often use exceedingly narrow criteria for permitting home-based businesses, if they are allowed at all.

In an "idea-based" economy, economic activity has become more "footloose." Firms are not tied to place; nearness to raw materials is often no longer critical. Instead, what is important to firms are supplies of skilled workers; low overall operating costs; the ability to change building form, work style, and production content quickly; and desirable amenities to attract employees.

In this dynamic, idea-based context, the public interest is best served by institutions that can register, process, and meet the needs and desires of all individuals within the community or neighborhood rather than prescribing outcomes that represent the vision or desire of planners and politically effective, special-interest constituents.

Land-use decisionmaking institutions should be grounded in voluntary exchanges, since voluntary exchanges mean reduced conflict and mutual gain. Public policy should facilitate community evolution in ways that harmonize the interests of current and future individuals within a community.

The fundamental challenges faced by planners, local residents, and their elected officials are:

  • What rules will determine the boundaries of autonomous action?
  • What rules will resolve conflicts in those realms where different people’s rights and actions intersect?

These challenges translate into four more specific questions:

  • What rules will facilitate entrepreneurship, innovation, and a dynamic, evolving economy?
  • What institutions will create opportunities for cross-jurisdictional coordination and market-driven problem-solving?
  • What institutions and decision rules will ensure linkages between developer/consumer decisions and the public impacts associated with those decisions?
  • What rules will create a sort of "bounded instability" that preserves spheres of autonomy that are a key source of innovation, dreaming, opportunity, and personal satisfaction, while still limiting public harms and balancing competing rights?

The next sections attempt to begin answering these questions by outlining the principles and tools of a market-based system of urban planning.


The following observations outline a few of the core principles of market-oriented planning (MOP).

Observation #1: Communities are Open Systems

Local planning policy and development regulations are often framed within a general world view that presumes communities can be designed or built as permanent features of society. This approach views whole communities as similar to its individual components -- the buildings, bridges, parks, or other physical elements of a community. Planning, presumably, simply arranges the components together to fit some idealized community as determined by planners or other policymakers.

This "closed-system" approach is implicit in many of the paradigms that have driven local planning in the United States, as well as Europe, beginning with the City Beautiful and Garden City movements in the late 19th and early 20th centuries and continuing into contemporary times through neotraditional town planning (or the New Urbanism). The closed system approach is evident as part of Florida’s top-down, state-directed growth management policy. Planners and elected officials passed Florida’s growth management law in an attempt to create higher density, compact cities, a policy at odds with the desires of most Floridians (Audirac, Shermyen & Smith 1990; Holcombe 1994).

The closed-system approach is explicit in farmland preservation efforts in a number of states, including Colorado, Vermont, Maryland, Michigan, Ohio. Local economies are seen as a balance of commercial, industrial, residential and agricultural industries. When one industry -- namely agriculture -- becomes less prominent, the local economy is considered "unbalanced" and comprehensive land-use planning is advocated as a way to maintain the balance. State farmland preservation task forces have advanced a number of different planning-based strategies to preserve or restore this "balance" including purchase of development rights programs, agricultural zoning, Agricultural Security Areas, requirements that agriculture be included in local land-use plans, and "Right to Farm" legislation.

In other cases, modern planning attempts to convert open systems to closed systems. Urban growth boundaries, or UGBs, attempt to create green belts (strips of undeveloped property) around built-up areas such as cities. The concept underlying the UGB is that more densely populated cities are preferred to less dense suburbs, and regions that close off development in outlying areas will create a more desirable compact city. As investment is funneled into higher-density areas, communities can be designed to accommodate basic human needs outside a market framework.

A core value driving these paradigms is that if cities, communities, and neighborhoods can be "designed" or engineered in the right way, they will function properly. In some cases, market-driven development and "livability" are considered conflicting goals. In other cases, land markets are not even considered.

Take, for example, neotraditional planning. Calthorpe (1993) provides 12 guiding principles for new urban planning and then provides detailed design specifications for nine core characteristics of communities: ecology and habitat, core commercial areas, residential areas, secondary areas, parks and plazas, streets, pedestrian movement, the transit system and parking requirements. Calthorpe’s design criteria do not mention the potential of real-estate markets to allocate land efficiently (often in directions that complement or facilitate neotraditional design goals) based on what consumers and residents prefer. In contrast, Calthorpe provides detailed design criteria about what buildings should look like, how much space should be allocated to parks and at what scale, and where specific uses should be located in what density.

Most general and master plans begin with a vision of what the community should look like after a period of time. As a result, most local general plans and zoning maps do not integrate uncertainty and/or spontaneous development as a fundamental element of the plan or planning process. In some cases, comprehensive plans are not updated. Columbus, Ohio, for example, adopted its first zoning code in 1923, did not comprehensively update it until the 1950s and did not update its comprehensive plan until 1992. In other cases, cities try to plan for growth and land-use changes that may be impossible to predict. Cary, North Carolina had a population of just 43,858 in 1990, almost doubled its size to 82,700 in 1997, and is expected to grow to 209,308 by 2010.

In fact, few local planning processes can accommodate spontaneous market development: zoning maps are amended ad hoc through lengthy legislative processes, variances are often legally permissible only under very restrictive conditions, and the presumption is almost always against changes to the general plan. Under most zoning and local planning laws, property owners must ask for and receive permission to develop their property from a government agency or planning board before any investment in land redevelopment can take place. Major developments are almost always subjected to lengthy public deliberation through public meetings and hearings as a matter of process.

MOP recognizes that communities, neighborhoods, and cities evolve over time in a dynamic, evolutionary way. Planning theory and tools must fully integrate the concepts of change and evolution into a framework that embraces evolving land uses as a fundamental building block of local planning and development regulation. Market-oriented planning strives to institutionalize mechanisms that facilitate community evolution through decentralized, voluntary processes. As a practical matter, economic markets serve this function more effectively than political markets because they are driven by consumers and, by necessity, are forward-looking.

Principle #1: As a basic planning principle, growth management should incorporate a presumption in favor of market trends and dynamic evolution.

Observation #2: Markets Allocate Most Resources Effectively and Efficiently

Contemporary planning views markets with skepticism and suspicion. Market-driven development, many planners believe, is driven by the short-term (and narrow) interests of property owners and land developers. Thus, they believe, markets tend to maximize short-term private profits at the expense of the public interest. An implicit, underlying theme of much planning theory is that market behavior is uncoordinated or unordered.

This view is again apparent in recent planning initiatives to encourage "compact" development sometimes referred to as "Smart Growth." In a recent study of Michigan communities by Rutgers University planners (SEMCOG 1997), community goals and development trends were assessed by consulting with public officials and planners, not developers, real estate agents, or even community attitude surveys. This is ironic, because developers and real estate agents are the only groups with a direct, obvious and clear stake -- financial survival and profitability -- in successfully matching consumer preferences with housing, neighborhood and land use choices.

MOP recognizes that, under appropriate rules, markets are efficient and equitable mechanisms for allocating land uses. Under the right institutional conditions (where the property rights and responsibilities of all affected property owners are considered), markets maximize public welfare. Long-term goals and the public interest are maximized because land development is by nature speculative: investments in land and property are based on expectations that consumers will be willing to purchase property in a desirable community and that businesses will want to locate in commercial and industrial centers.

Market accountability is also swift. Developers often receive approval from local planning boards for certain types of development and then seek a series of modifications as the market for their project is more clearly revealed. In one case, a developer proposed building a 26 unit housing development with average home prices in the range of $300,000 to $500,000. After a two years, only ten lots had been sold. The houses that had been built were on the market for unexpectedly (re: unprofitably) long periods. So, the developer changed the design of the development. The new lots and homes will be designed for the $150,000 to $250,000 range and targeted toward empty nesters. The market sent a clear message to the developer about what consumers wanted and were willing to pay for. The developer then used this information to redesign his project to meet what consumers wanted. The land market imposed "order" on the desires of the developer -- and, in this case, the local planning board -- through the profit and loss system of the land market. Not surprisingly, urban economists have found consistent support for this approach to understanding how land markets facilitate community building and urban development (Henderson 1988).

Principle #2: Planning theory should embrace this more realistic concept of markets in which markets are understood to incorporate long-term goals and dynamic consumer and commercial expectations.

Observation #3: Political Processes are Inefficient Means with Which to Make Land-Use Decisions

Planning theory implicitly assumes that voter involvement in specific land-use decisions is socially efficient and beneficial. This assumption is most clearly evident in recent trends toward "ballot box zoning," where planners have almost universally heralded this trend as another way of encouraging citizen participation in local planning issues and land development. See Caves (1992).

Ballot-box decision-making, however, is also an unstable, uncertain, and slow approval mechanism. It can also be arbitrary and inequitable. When applied to economic decisions, political processes tend to generate significant inefficiencies as well as inequities.

Some cities, for example, require community approval through referenda for all rezoning applications. Typically, referenda suffer from poor turnout, giving special-interest groups more weight at the ballot box than community sentiment may warrant. In addition, the delays and uncertainty associated with this procedure discourage property development generally, regardless of the scope or quality of the proposed project. A study of 63 Ohio cities found that cities that use the ballot box on zoning issues suffer a "growth penalty:" growth is lower in communities that place zoning decisions on the ballot (Staley 1998). In fact, the analysis found that communities with ballot-box referenda experienced lower growth irrespective of whether the decision favored or opposed the proposed change. Thus, the mere fact communities subjected land use decisions to the ballot box was sufficient to discourage investment. Communities run a very real risk of reducing the quality of property development and redevelopment because of the transaction costs implicit in this arrangement.

Further, economic decision-making through collective voting severely constrains and weakens property rights that establish the spheres of autonomy critical to economic investment, private planning, development and growth. By subjecting property development to a legislative approval process, some property rights are effectively negated, since public approval is a prerequisite for exercising those rights. Planning, as it is currently conceived and practiced, shifts the regulatory role of government from one of protecting individual spheres of autonomy, and mitigating specific harms and social impacts, to one that supersedes individual rights and replaces them with potentially unbounded majority rule or special-interest dominance.

Consider the following paradox. Conventional wisdom considers planning to be an essential part of land development. Yet, in reality, planning boards and city councils approve the lion’s share of rezoning applications. One study of Santa Barbara, for example, found that 95 percent of zoning requests were approved by the local coastal commission (Seigan 1990). In another study of twenty California cities, communities that were supportive of growth approved 95 percent of proposed zone changes and amendments to the general plan (Dalton 1989). Communities that were unsupportive of growth approved 72 percent of zone changes and amendments to the general plan. Thus, even "slow growth" communities altered their plans to conform to changing needs, most of which were market driven. Yet the planning process imposes additional costs on development, regardless of its appropriateness or the inefficiencies inherent in a legislative approval process. To the extent the results of land development with planning approval are the same as they would have been if land development were left to market processes, the costs of obtaining development permission from a local planning board represent a net loss to society--the process imposed higher costs than were necessary to reach the same goal.

MOP recognizes that governments perform their most-important tasks when they set the rules of the game for market behavior rather than make the decisions themselves. By subjecting development projects to public review, local governments are forced into a case-by-case review of land development irrespective of its impact on the community or neighborhood. Relatively minor and innocuous changes in use are subject to the same approval processes as large, integrated, mixed use developments. Ultimately, this lengthens the approval process, slows land redevelopment, and subjects development projects to an often arbitrary and unpredictable approval process.

Principle #3: MOP attempts to limit the politically arbitrary nature of development approval by subjecting land development to administrative rather than legislative processes.

Observation #4: When Spillover Impacts From Development Occur, Their Effects Can Be Mitigated Through Performance-Based Public-Sector Planning

Governments are most effective when they protect clear and definable interests. Market spillover impacts--circumstances in which market activity imposes costs or benefits on third parties (for example, erosions, noise or air pollution)--may require government or third-party action. Also, cases in which market transactions fail to provide enough of a good or service (for example, open space and habitat protection) may warrant some government action to create incentives for the provision of non-market amenities.

The original intent of zoning was to protect neighbors against development that could reduce property values by imposing harms. Zoning was upheld by the U.S. Supreme Court as an appropriate use of the "police powers" of government to protect the general welfare.

However, before restrictive public interventions occur, the negative impacts of property development should be demonstrable, and developers should be given the opportunity to correct for these impacts. To a limited degree, the rezoning and plan-approval process in existing planning systems accomplishes this goal. Development approval is a result of bargaining between local officials (incorporating citizen concerns) and property developers. In order to obtain approval, developers must substantially satisfy citizen concerns and conditions required by staff and the local planning board.

The approval process creates a bargaining environment in which developers and property owners must meet all concerns, regardless of their actual impacts. Often, for example, proposed developments are scaled down to inefficient levels or are forced to adopt less-beneficial designs because developers must allay citizen opposition based on vaguely defined and unsubstantiated concerns over property values or "community impact." Thus, while the Santa Barbara coastal commission approved 95 percent of zoning requests, they only allowed 60 percent of the proposed housing units (Seigan 1990). In another case in the Midwest, vocal opposition from a grass roots slow-growth group led the local planning board to require that a new housing development hook up to a nearby city’s sewer system even though using a proposed septic system was both environmentally safe and less expensive (Staley, 1997, 119). The requirement was made because of unsubstantiated fears that the development would lower water pressure for nearby residents.

MOP adopts a market-impact standard for addressing concerns over property development, moving toward the common law principle of nuisance as a standard for government regulation of voluntary, private activity. Many of these principles are already applied in the U.S. tort system. This focus differs from traditional zoning practice, which confers development rights on property owners regardless of the impact on adjacent property owners (Fischel 1985). It also differs from modern practice in which, through political pressures, the "use as of right" notions of traditional zoning have become subject to manipulation, reducing development certainty and requiring project modifications even where impacts are trivial or represent purely subjective perspectives of planners.

For example, if someone wanted to add another floor to his house in a residential district, blocking the sun for adjacent property owners that reduced their quality of life, the would-be builder currently has a legal right to redevelop the property under the zoning law regardless of the impact on his neighbors. By contrast, a common law-type nuisance standard would give the neighbor standing to have clearly demonstrable damages resulting from the redevelopment compensated or mitigated. At the same time, this approach requires demonstration of actual "harm" or impact in order to require compensation of "nuisance" mitigation. This approach enhances the role of planners as mediators within the community, while still preserving "spheres of autonomy" for property owners.

Principle #4: Local planning should move toward a common law, nuisance-based standard for regulating land development.

Observation #5: Local Politics Tends to Give Narrow Special Interests Too Much Weight and Influence

The political decision-making process is poorly suited to the task of making decisions about resource-allocation activity, including property development. Property development, first and foremost, is about transforming an economic resource (land) from a less-productive use to a more-productive use. Planning policy should reflect and encourage this transformation of uses to maximize community welfare.

Current planning procedures place developers and public officials in a bargaining relationship that unnecessarily drives up costs. The process is based on a fundamentally static conception of community. The land-use plan sets out in detail the planned development of the community. Any deviation is contrary to the plan. Since the plan, in theory, lays out the community’s "values," the presumption is always in favor of the plan, irrespective of its applicability and relevance over time. As a result, all development applications are presumed rejected and the burden is on property owners and developers to prove the benefit of their proposal to a government agency. This inevitably hinders change and innovation and protects the status quo. In addition, by giving all members of a community standing in a public hearing, special-interest groups that represent a minority in a community (for example, a no-growth coalition), can raise objections during the public-hearing process. Bargaining drives toward compromise where developers modify their proposals to meet objections to expedite development approval.

For example, a senior citizen coalition may object to the addition of attached townhouse units, preferring single family, detached housing in its place. The developer will reduce the density of his project, perhaps eliminating the townhouses, to meet these concerns regardless of broader community sentiment on the project.

By adopting administrative approval procedures that favor market trends in land development, the arbitrariness of development approval is minimized. By limiting standing in public hearings to directly affected property owners, the impact of special interests in the development control process is also minimized.

Principle #5: Standing in public hearings should be limited to those directly and tangibly affected by the proposed development.

These general principles provide a market-oriented framework for conceptualizing land-use planning on the local and regional level. The practical manifestations of these principles are discussed in the next section.


How can these principles be implemented in a practical way? Recognizing that Market-Oriented Planning attempts to capture the dynamic, evolutionary nature of property development, the following recommendations can be incorporated into local planning practice:

Presumption in Favor of Property Owners

Property development should be permitted as of right unless explicit action is taken by the planning board or local legislative body to evaluate the application. This can be coupled with maximum time limits for review by staff, planning commissions, or local legislative bodies.

Since MOP also explicitly incorporates market impacts and the pursuit of non-market amenities as a justification for public intervention in land development, developers can be required to notify neighbors and others directly impacted by their proposed project. Project proposals should be subjected to public hearings only if city staff, council members, planning commission members, or parties directly affected by the project identify tangible impacts on their interests (see "Objections" below).

Home Rule

State and regional planning authorities are less likely to have the knowledge or forecasting ability to more accurately or reliably predict land use trends on the local level. They are also more displaced from community interests and desires. Therefore, intervention from regional or state planning agencies or authorities should occur only when a clear public interest or need is identified, or spillover effects are identified and not addressed in the proposed plan.

Local planning decisions should thus be protected from regional or state planning mandates, including consistency requirements to meet state designated goals. The extent to which local development projects have negative impacts on communities and neighbors or create nuisances is best evaluated at the local level since decentralized governance allows public policies to match citizen preferences. Thus, diversity in local government accommodates diversity among and within communities (see Staley 1992, 20-3).

This view is supported by studies on regional governance which show that consolidations have an unimpressive record in relieving traffic congestion, supplying affordable housing, and so on (Fischel 1989; Husock 1998). Moreover, other research demonstrates that presumed economies of scale in provision of most urban services do not exist (Staley 1992, 16-7; Husock 1998). Indeed, regional governance appears to result in some efficiency losses in service delivery. Moreover, lower levels of government are more likely to restrain spending than are consolidated governments (Boyne 1992).

Objections Limited to Tangible Impacts

Developers should be expected to modify projects to minimize the negative impacts of their proposed development, but these impacts should be tangible and measurable. Groundwater run-off or traffic congestion, for example, are identifiable and measurable impacts that can be assessed objectively. Developers should be expected to consider the external costs imposed by their development on neighbors and the community.

In general, planning and zoning approval should not control development for aesthetic reasons, or concerns over layout and density unless the project is located in a district with a clear purpose, intent, and identity (e.g., historic districts or other special districts). Specialized districts, however, should be restricted to geographically targeted areas with clear, identifiable characteristics that warrant exception. Empirically, the impacts of negative externalities tend to be very localized, affecting close neighbors rather than entire neighborhoods or communities (Pogodzinski and Sass 1991). Thus broad, citywide applications of site-specific development controls should be avoided.

Adopt Broadly Defined and Mixed-Use Zoning Districts

Planning boards should minimize the likelihood that projects will be delayed through a legislative approval process. This can be achieved by eliminating zoning districts (with a nuisance based system in place), or if that option is not feasible, adopting broadly defined zoning districts that accommodate a large number of uses. Rezonings are often prompted by poor forecasting by local planners and/or out-of-date master plans. A parcel of property, for example, may be zoned for strip retail even though market signals indicate a better use is professional office or multifamily housing. In many communities, a development plan incorporating professional office or multifamily housing would constitute a change in use and be subjected to a two-stage approval process. The first stage would consider rezoning the property to a land-use designation consistent with the proposed use (for example, retail to professional office or multifamily residential). The second stage would consider the proposed development plan for the site. (In most cases, the rezoning approval would also include evaluation of a preliminary site plan.)

More broadly defined and mixed-used zoning districts could accommodate a variety of different uses and densities, depending on market conditions. Moreover, reducing the number of districts while broadening the number of uses permissible would reduce processing and approval time, consolidating two steps into one. A current urban planning trend that would benefit from this approach to land-use regulation would be neotraditional planning. Neotraditional urban architects Andres Duany and Elizabeth Plater-Zyberk found that local planning and zoning codes were impediments to innovative urban design. "Regulatory codes lies at the heart of Duany and Plater-Zyberk’s work," observes William Lennertz. "Early in their work they realized that existing zoning ordinances -- more than economics or planning and design philosophies -- were impediments to achieving more urbane communities." (Lennertz 1991, 96) "The traditional pattern of walkable, mixed-use neighborhoods has been inadvertently proscribed by these ordinances." (102)

MOP would facilitate land-use changes that meet changing and evolving community needs by allowing diverse types of development as of right. Mixed-use districts are an excellent mechanism for promoting diversity within communities. An alternative would be broadly defined land-use districts that allow a variety of uses. For example, commercial districts could allow a wide range of commercial uses, from retail to professional office to hospitals to universities.

Administrative Site Plan Review

Once land is rezoned, site plans should be reviewed as quickly and efficiently as possible. This goal, in most cases, means adopting an administrative review process with clearly defined criteria for what is acceptable by local planning standards. Administrative site plan approval can also be coupled with performance bonuses to encourage the inclusion of certain characteristics. For example, under its flexible-zoning system (no longer used), Fort Collins, Colorado allowed higher densities if developers incorporated certain features (for example, landscaped buffers between roads and buildings) into their development plan (Eggers 1990). The critical element of the Fort Collins model was flexibility, so that developers could make trade-offs about their site based on market conditions and trends.

Developer Payment For Infrastructure Needs

Property owners and developers should bear the full costs of property development. Local communities should not be expected to subsidize property development by extending sewers, roads, and other infrastructure to the site.

Impact fees are one way to accomplish this goal. Delaney (1993), for example, found that development agreements that used impact fees and exactions tended to reduce uncertainties in the development approval process while ensuring revenues exist to provide infrastructure when it is needed (Nelson, Frank and Nicholas 1992).

Impact fees, however, also have a political dimension. Ross and Thorpe (1992) identified more then 22 categories of facilities and activities that can legally be financed through impact fees. Most reflect political goals -- public art, low income housing, mass transit, historical preservation, day-care facilities -- rather than facilities and traditional public goods such as roads, sewers, public schools (see also Dresch and Sheffrin 1997, 10-13). In addition, impact fees and exactions tend to pose significant equity questions. "Exactions tend to redistribute wealth from younger to older and from poorer to more affluent households," note Altshuler and Gomez-Ibanez in their review of their equity impacts on housing prices and public services (1993, 110).

A more appropriate mechanism would simply require private developers to pay the full financial burden of extending these features to their property using materials and technology consistent with the existing infrastructure and with their own development needs.

A developer-pay approach needs to be accompanied by flexible design criteria, so that individual developers can determine what level of infrastructure and what construction standards make sense for the intended users of that infrastructure. While many communities increasingly require developers to pay for infrastructure, they give developers little latitude in determining what kind of infrastructure is appropriate. The result is often high-cost infrastructure that exceeds the development-site needs. For example:

  • Local governments sometimes specify roads with lane-widths (12-feet) appropriate for interstate highways--such lane-widths impose higher costs but are unnecessary for safety or smooth traffic flow on residential streets.
  • Storm drainage piping is sometimes required to accommodate flows that are many times greater than any calculated necessary capacity.
  • Many communities also require site landscaping according to prescriptive rules rather than allowing site developers to landscape according to what is prudent and aesthetically attractive to potential buyers and tenants.
  • Subdivision regulations in many regions of the country require that roads have concave crowns (roads bow upward) to force stormwater to drain to pipes on both sides of the road even though new technology and materials permit lower-cost convex crowns toward the center line where one pipe drains stormwater.

A complete "developer-pay" approach runs the risk of underbuilding. Some property developers and builders might under-invest in roads, sewers, water systems etc., eventually shifting infrastructure up-grades to the public sector. This problem could emerge from attempts to minimize infrastructure costs or miscalculations about the willingness of new residents to pay for new infrastructure. Future subsidization can be mitigated by ensuring that the cost of future upgrades is borne by the residents most effected by the upgrades. This process is greatly facilitated in the residential market through homeowner associations.

Developers, for example, sometimes receive waivers from local zoning codes (usually under Planned Unit Development provisions) to build private roads. Private roads are often narrower or built to different specifications than provided in subdivision regulations and maintained by the local homeowner’s association. Homeowner associations sometimes approach the local municipality to convert the private road to public streets (often because the association wants to avoid the transaction costs associated with maintaining a limited number of roads). If the local government agrees, the private road is converted to a public street and the costs of the upgrade are assessed against the homeowners’ association or residents on the affected street.

Standing in Public Hearings Limited to Parties Clearly and Directly Affected by Proposed Development

An important feature of MOP is correcting for "third-party" impacts of property development. Intensive development of a property may tangibly impact neighbors who might now be subjected to more traffic congestion, noise pollution, or other tangible impacts. Public hearings should be used primarily as a mechanism to disclose these tangible, measurable impacts so they can be addressed in the project proposal. Developers should address these concerns by modifying their projects. Alternatively, if agreement between developers and property owners cannot be reached, third parties such as conflict-management teams or local courts can mediate and adjudicate disputes.

Process-driven Planning

Development approval should be based on a process--a set of clearly defined rules--rather than an end-state vision of what the community should look like 10 or 20 years down the road. This recommendation accepts recent empirical evidence that, in practice, zoning decisions tend to follow market trends rather than vice versa (McMillen and McDonald 1991; Pogodzinski and Sass 1994). This is in contrast to top-down approaches, such as the Portland model, where cities are designated as growth poles by regional planners and new development is guided or steered to those areas. Process driven planning allows real estate markets to determine land-use patterns. Certain thresholds of development or performance criteria (e.g., traffic counts or density requirements) might trigger certain types of public investment (e.g., road expansion or modifications), but the object of planning would not be to direct or manipulate private investment to achieve a pre-defined architectural vision for the city.

Streamlining the local planning system

Several changes could also be made to existing local planning systems to streamline the approval process.

Supermajority requirement to modify planning board decisions

Planning board decisions and deliberations are important mechanisms for refining development plans. They also serve a mediating function between developers and neighboring property owners. While local communities should provide an appeal process, local planning systems should presume that recommendations of planning boards are fair and accurate. A supermajority requirement would build certainty into the planning process, strengthen the ability of planning boards to mediate between affected parties, and provide a local appeal process.

Mandatory pre-application meetings with planning staff, consultants, and planning boards

Pre-application meetings with staff and planning boards can be effective ways to identify externalities and market impacts before significant resources have been invested in a project. Modifications to development proposals and site plans are more efficiently incorporated at the early stages of the design process. Modifications at advanced stages of site development, however, can significantly increase costs. Mandatory pre-application meetings can minimize some of these costs and lay the groundwork for a working relationship between developers, planners, and other public officials. These types of meetings are preliminary to formal commitments to move forward on development projects.

One-stop permit processing

One-stop permit processing streamlines the permit application and approval process, particularly for small and less-experienced developers. This approach could significantly reduce the transaction costs associated with development permission and approval once projects have been committed to.

Mandatory public-sector planning

Ironically, current planning practice regulates private property development without imposing the same restrictions on the public sector. This is particularly troublesome given the wide range and variety of long-term investments in infrastructure made by state and local governments.

State, local, and regional governments should be required to plan the location of infrastructure and secure the necessary rights of way and easements before development takes place. This does not imply that the public agencies begin constructing infrastructure immediately. On the contrary, public agencies might lay out clearly where they expect to place key infrastructure such as roads, bridges, interchanges, sewers, and water lines. Actual construction, however, would be triggered by actual development patterns and can be tied to certain performance measures. This provides certainty for private developers but does not obligate the public sector to infrastructure development until land-use patterns are well established through market processes. This also gives public (or private) infrastructure agencies flexibility: they could construct a two-lane road at early stages of development, expand to a center-lane road later in the development phase, and eventually develop the roadway into a four-lane highway.

If public agencies were subject to mandatory planning requirements, and were required to buy rights of way early in the process, many of the objections to traffic congestion and other nuisance effects of development might disappear, reducing the politicized nature of the zoning and planning process.

Note that this recommendation is not the same as end state planning as it is currently practiced. Concurrency, for example, requires infrastructure to be in place in anticipation of future development. In Portland, an end-state vision of what Portland should look like is used to guide public investment in rail transit, and private investment is directed by the regional plan to fit the plan’s vision, not consumer markets.


One of the most important tasks confronting planners is how they will integrate market-oriented thinking into planning theory and procedures. Planning should not rely on end-state planning and static prescriptions to direct land-use and property development.

The lessons of the last 50 years -- the decades of suburbanization and decentralization -- are that land-use planning operates within a broader market framework. Integrating market-oriented thinking into planning theory and practice will require substantive changes to the way planners view the process of land development. It also may require changing their view of the regulatory role of local government in the urban development process.


Acknowledgements: The authors would like to thank Randy Simmons, Randall Holcombe and two anonymous referees for comments and suggestions. The authors remain solely responsible for the content.


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