Skip Navigation Planning & Markets
Subscribe Submission Requirements Editorial Board Archive Links Search Home



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.

page 4



USC Seal

Main Page | Subscribe | Submission Requirements | Editorial Board | Archive | Links

ISSN 1548-6036

Copyright 1999-2000
University of Southern California
Los Angeles, California 90089-0626