Market-Oriented Land-Use Planning:
by Hans Lind
The development in many countries has been described as a movement towards a more market-oriented land-use planning. Here it is argued that "market-oriented planning" covers several distinct types and that these can be analyzed by looking at the role of the local government in three dimensions: formulation of visions of urban development, legal rights to determine land use, and economic resources. Market-oriented planning then means a stronger role for the private/business sector in one or several of these dimensions. Five specific types are identified, related to in which dimensions the private/business sector is dominating.
I want to thank the Swedish Research Council for Environment. Agricultural Science and Spatial Planning for financial support and Professor Thomas Kalbro for many helpful discussions. Constructive comments from two anonymous referees also helped to improve the article.
Land-use planning has changed more or less dramatically in most countries in recent decades. This development is often described in terms of a more market-oriented planning. See, for example, Rodwin and Sanyal (2000) for a description of development in the United States, Allmendinger and Tewdwr-Jones (2000) for England, Mäntysalo (1999) for Finland, and Cars and von Sydow (2001) for Sweden. In many countries there are currently discussions about rising housing costs and problems in the supply of new housing. One theme in this debate is that the planning system still is too bureaucratic, and that a more market-oriented planning system would improve the situation. See, for example, Staley and Scarlett (1998) or Luger and Temkin (2000) concerning the situation in the United States, and Monk and Whitehead (1999) concerning England.
Within this literature there are of course controversies: Is market-oriented planning something good or bad? Is it something that we must accept as inevitable even if it might have negative consequences in certain respects? However, if one looks closer at the debates, it turns out that term market-oriented planning is far from clear. Mäntysalo (1999, p.189) notes that "the picture of market oriented planning styles is becoming more blurred".
The purpose of this note is only to identify a number of different interpretations of the term "market-oriented planning," and to create a framework where these different types can be related to one another. Such a clarification is very important as a basis for constructive debates about the planning system. If one is interested in the effects of a more market-oriented planning on, for example, housing costs or democracy, it is of course very important to give the concept a clear meaning. There is no reason to assume that all variants of market-oriented planning will have the same consequences.
The strategy in this article is to first describe the "anti-thesis" of any kind of market-oriented planning, i.e., land-use planning with a very strong local public sector (section 2). Three central components are identified: The local government formulates the visions, the local government has far-reaching decision-making powers, and the local government has economic resources to implement the plans. In the following sections (sections 3-7) a number of interpretations of market-oriented planning are defined in terms of their characteristics in these three dimensions. The relation between the types will also be discussed in these sections. The final section (section 8) contains an overview of the different types of market-oriented planning, and some comments on the trajectory of land-use planning in some countries. This is a way to indicate the potential usefulness of the distinctions made.
To simplify the discussion, we assume that there are only one or two important levels in the planning system - the local level and the state/national level. The conceptual framework developed here should be useful also for analysis of market-orientation in a multi-level system, but this will not be discussed further here.
II. The Ideal-type Of Strong Local Government Planning
In Logan and Molotch (1987, p. 153) we can read:
We will return to the meaning of this later, but we can note that they mention Sweden as an extreme contrast to the American situation (p. 147). What was it then that characterised Swedish land use planning at that time?
I think we can identify at least the following properties:
One could perhaps add that in this ideal type there are also strong local politicians, i.e. politicians that were not afraid to disregard the views of small opposing groups if that was necessary for the renewal of the city.
After local government reforms in the 1950s, most local governments covered a whole city and surrounding areas, so there was no role in planning for regional authorities. Even in the handful of metropolitan areas with several local governments, the regional level played a weak role, primarily because a strong historical heritage of "self-governing" local governments.
This ideal type can be described in terms of three core components.
Component 1: The local government dominated ideologically. The local political apparatus formulated the general visions and also the visions concerning specific projects.
Component 2: The local government had a strong legal position, which gave them wide decision-making powers, and also the right to expropriate land and buildings if that was judged to be necessary. The private owners of land had no right to change the land use, and were not entitled to compensation if a development was not allowed.
Component 3: The local government had a strong financial position, partly through local taxes that grew because of a positive general economic development, and partly through resources supplied by the central government. These resources made it possible for the municipality to implement their decisions without compromising with private suppliers of capital.
Table 1: The Ideal Type of Planning with a Strong Local Government
In this ideal type, the private real estate developers that wanted to survive had to do what the local government wanted them to do. These actors in the private sector had a weak bargaining position, because the local government could implement the projects themselves if the private sector made demands that conflicted with the ideas of the local government. The private firms worked primarily as builders, with the entrepreneurial role concerning land development taken over by the local government, and with no role for the land market.
In one sense, however, the local government was always dependent on decisions made by private firms. We are talking about land use planning in a market economy where private firms dominate in most sectors of the economy. Most of these private firms were not geographically constrained, but could move production to another region or even another country. To clarify the meaning of the ideal type of strong local government planning, it is necessary to make a distinction between - to put it crudely - firms that belong to the economic base and real estate firms (developers, property owners/investors, construction firms). The municipalities were always dependent upon private firms, mostly in the manufacturing sectors, to move to or expand in their city. But what characterises the ideal type of strong local government planning was that the local government was not dependent upon the views of private real estate firms. The municipalities had to negotiate with the firms in the economic base, but they could develop, own, and manage the real estate if they wanted to. Some of the big municipal housing companies even had construction divisions, even if many builders were private firms. Of course, the firms in the economic base usually had some views about land use, but these primarily concerned their own need for a land reserve on which to expand, and on rail and road connections for their plant.
III. Market-Oriented Planning Of Type 1 - Planning Based On Compromises With Private Real Estate Investors Made To Attract Private Capital
In this type of market-oriented planning, component 1 and 2 above are not changed. The local government still formulates the visions and has a strong legal position. However, in many countries the economy deteriorated during the 1980s, and this also affected the financial situation of local governments. The third component of the ideal type of strong local governmental planning was no longer fulfilled. The local government now needed private capital to implement their visions.
A typical case of this was the building of the Stockholm Globe Arena. The political leaders in Stockholm believed that their region needed a big new indoor arena that could compete with the Scandinavium arena in Gothenburg for big international events. The local government lacked financial resources, but they owned the land in an old industrial area close to the central parts of the city, an area that was judged to be suitable for a new arena. A deal was made with a group of private investors who got the right to build offices, hotels and a shopping centre around the arena on the condition that they build the arena and then hand it over for free to the local government. Mäntysalo (1999, p. 183) writes that the local governments were "increasingly seeking new forms of cooperative planning with the private sector."
This change also affected the details of the planning process in a number of ways, as a number of specific features of the layout of the area or the building design had to be accepted by the private investors. In this context, Mäntysalo (1999) describes the planning as more project-oriented, and partly turned around in the sense that the lay-out of the area could not be decided until the negotiations about the specific building complexes were finalized. For obvious reasons these negotiations were made behind closed doors, involving only a small group of leading politicians and civil servants. Cars (1992) gives a general description of this type of planning, and analyzes a number of Swedish cases. Just to have a short name for this kind of market-oriented planning, we will in the rest of the article call it “New Nordic Style.”
Table 2 summarises the characteristics of this type of market-oriented planning:
TABLE 2: Market-oriented Planning: Type 1 - New Nordic Style
As always, there is in reality differences in degree, and the weaker the financial situation of the local government, the more it will have to compromise in terms of the vision that was to guide the development of the city. But as long as the local government had the right to decide land-use, they had a rather strong bargaining position.
IV. Market-Oriented Planning Of Type 2 - Developer-Driven Planning With State Support
The most extreme contrast to the ideal type of strong local government planning can be found in the early stages of the Thatcher period in the United Kingdom. See, for example, Thornley (1993), Harding, Wilks-Heeg, and Hutchins (2000), and Allmendinger and Tewdwr-Jones (2000). The formation of Urban Development Corporations (UDCs) meant that, in designated areas within a city, the local government lost its legal rights to determine land-use. The proposals of the UDCs only had to be approved by the central government. As business interests dominated the UDCs, the vision for the future of the area was formulated completely outside the sphere of the local government. Harding, Wilks-Heeg & Hutchins (2000, p. 980) write:
This type of market-oriented planning will be called "Thatcher Style," and its characteristics are summarised in Table 3 below. The financial position of the local government isn´t so important in this case as it has lost control over the area in question.
TABLE 3: Market-oriented Planning: Type 2 - Thatcher Style
This type of market-oriented planning can be compared to what has been called "trend planning," which Mäntysalo (1999, p.183, p. 185) describes in the following way.
However, nothing in the definition of Thatcher Style planning says that local government planners need to be involved in the kind of "essentially aesthetic control" that Mäntysalo discusses. My impression is that the private investors were very interested also in controlling design issues as these could affect the attractiveness and profitability of the projects. This also seemed to be the case in Nordic Style market-oriented planning discussed in the last section.
Allmendinger and Tewdwr-Jones (2000) make a number of observations that indicate that this type of market-oriented planning can be dynamically inconsistent: It can perhaps only be applied for a short period of time and after that it will break down.The basic reason for this is that the external investors that dominate an Urban Development Corporation will turn into owners of locally bound capital when the project is completed. To protect their investments, the private investors might want to return authority to the local arena. A new UDC that only needs approval of the central government can plan in a way that negatively affects existing areas, perhaps just by increasing supply and competition on the real estate market. The old investors might therefore support proposals that increase the power of the local government, if the investors believe that it is easier for them to affect local decisions. Even a strong right-wing government like the Thatcher government chose to give back powers to the local governments after a number of years. Fischel (2000, p. 405) notes the following in the context of American planning, and this strengthens the idea that it is difficult to reduce local power over planning.
V. Market-Oriented Planning Of Type 3 - Planning To Protect The Interests Of The Current Property Owners
This interpretation, and the one discussed in the next section, is primarily inspired by American discussions about planning. The starting point is that the local government has strong zoning instruments that make it possible to determine future land uses. This tool is under the control of the majority of the citizens in the municipality, and they are assumed to use this tool to improve their economic situation. Fischel (2000, p.404; 1992, p.17) writes:
Similar views can be found in Pogodzinski and Sass (1990).
In this ideal-type, which we call American Style market-oriented planning, the municipality has no specific long run vision, and they do not have financial resources to carry out any major investments on their own. The strategy of the local government is instead to use their control over land use to force developers to pay for different kinds of infrastructure that are needed. Fischel (2000, p. 412) notes:
Mäntysalo (1999, p. 188) makes the same observation for Finland:
In this way, the current property owners can reduce their tax burden and protect/increase their property values.
The basic characteristics of this type of market-oriented planning are summarised in Table 4.
TABLE 4: Market-oriented Planning: Type 3 - American Style
The difference between the New Nordic Style and this American Style of market-oriented planning concerns who formulates the visions for the development of the city, or for a specific part of the city. Is the process driven by initiatives taken by the local government ,or by initiatives taken by the business sector? In reality there is of course a continuum of alternatives, and not just two polar cases. Notice that the local government has a much more important role in American Style market-oriented planning compared to Thatcher Style planning.
To illustrate the difference between the American Style and the Thatcher Style of market-oriented planning, we can look at the following hypothetical case. Assume that a developer finds that it would be profitable to build a large shopping center aimed at middle and low-income households within the borders of a municipality mostly inhabited by high-income households on rather large estates. In a system of Thatcher Style planning this kind of project might be possible to carry out, but it might not be allowed in the American Style. The majority of the current property owners might think that the project would be bad for them, even if the developer pays a reasonable share of the profits to the local government.
VI. Market-Oriented Planning Of Type 4 - Planning To Simulate A Market With No Transaction Costs
This view of market-oriented planning starts from a specific theoretical perspective based on the works of Ronald Coase. The fundamental idea is that if property rights are well-defined, if actors are rational and perfectly informed, and if transactions costs are zero, then there would be no need for public land use planning. See, for example, Laia (1997), Staley and Scarlett (1998), and Klein (1998). If property owners want to change the use of their land, they could just make a contract with all individuals whose property rights are affected. Investment in infrastructure could be made by private investors who would charge anyone who used the infrastructure, and who would also sell options to landowners who in the future might develop their properties and then might want to use the infrastructure. In such an ideal market, the only role of the state is to define and protect property rights.
The question in this literature (Laia 1997, and Staley and Scarlett 1998) is what kind of planning that can be motivated by the unrealism of the assumptions above, primarily that there in reality can be considerable transactions cost. Can we identify the situations where real transactions costs are too high, and where planning might increase efficiency? There are controversies about exactly what kind of local government planning might be motivated from this perspective, but a rather common view in this literature seems to be that the role of this planning would be to do the following:
In these areas the role of the planner is, according to this view of market-oriented planning, to try to simulate what would have happened in the market if there were no transaction costs. The planner should not start from any specific professional or political view of what is a suitable development. To quote Mäntysalo (1999, p. 182) the planner should, "use the public authority to assist the private sector with minimal regulatory intervention," or to quote Allmendinger and Tewdwr-Jones (2000, p.1396), "The emphasis on planning as a more minimal and focused form of regulation…"
We summarise this type of market-oriented planning, which we call the "Coasian Style," in Table 5.
TABLE 5: Market-oriented Planning: Type 4 - Coasian Style
The differences between the Coasian Style and the American Style planning can also be illustrated by the example of the proposed shopping center. Assume that the profits from such a development would be so high that it would have been possible to compensate all the losers, if there were no transaction costs relating to measuring these costs and benefits for all parties, and for negotiating the contracts. Then the project would be allowed under Coasian Style planning. In reality, these transaction costs could be so high that it is not possible to find a proposal, including compensation, that would receive the approval of the majority of the current property owners. The project would then not be carried out under American Style planning.
Another way to describe this difference is that, given certain assumptions, the Coasian Style of market-oriented planning aims at maximizing total property values. See Milgrom & Roberts (1992), Chapter 2,"The Value Maximising Principle." The American Style, on the other hand, aims at maximizing the property values for the majority of the voters.
It is probably very difficult to implement Coasian Style planning, as we should, at least from a Public Choice perspective, expect that local interests dominate local government planning. We could however, at least in theory, imagine that an enlightened central government under the Thatcher Style of planning would only approve proposals that fulfill the conditions of the Coasian Style planning.
VII. Market-Oriented Planning Of Type 5 - Planning In Co-operation To Increase The Competitiveness Of The City
The types of market-oriented planning discussed above are very much focused on the local arena, and the relative power and resources of local politicians, local property owners and developers. When the economic system as a whole develops into a more global system in which firms and people more easily can move between cities and countries, there is an increased pressure on the local actors to cooperate instead of compete with respect to local power.
Williams (1999, p. 21) talks about "the marketing of places" and writes:
Gleeson and Low (1999, p. 42) write:
A number of the articles in Rodwin and Sanyal (2000) point in the same direction, for example, the ones by Innes and Susskind. A similar Swedish development is described in Cars and von Sydow (2001).
In Table 6, we summarise this fifth form of market-oriented planning, which we call "Globalization Style." The local government is seen as an important actor, but one among several actors, who formulate visions for the development of the city. The local government has strong legal rights concerning structural issues and also considerable economic resources that can be used for investments, especially in infrastructure. Compared to the other types of market-oriented planning, the distribution of formal power will, however, be of less importance. The external pressure to be competitive is the driving force.
TABLE 6: Market-oriented Planning: Type 5 - Globalization Style
To keep a dynamic economic base is, of course, important in all types of local planning. The Globalization Style of market-oriented planning is an ideal type in which the foot-looseness of the economic base is very high. The local actors are, in reality, in a game situation reminiscent of the Prisoners´ Dilemma: The outcome for them can improve if they all cooperate to make the city competitive, but each local actor might want the other actors to compromise the most. Some actors, or some municipalities within a region, might try to ride free on the cooperative efforts of the other actors/municipalities. One way to avoid conflicts between different actors or municipalities is to limit the kind of issues over which the local or regional government has decision making powers, as is indicated in Table 6. Considerable room for local initiatives may also be a way of making the region more attractive.
Thornley (1993, p. 217) argues that one of the characteristics of the developer-driven planning, described above Thatcher Style planning, was " the removal of social criteria." It might be interesting to speculate a little about the general content of the Globalization Style of market-oriented planning. What does it take to make a city more attractive? If we examine, for example, Andersson (1999), then the picture that emerges is that, for a city to be able to attract expanding new industries, it will need to have a well functioning housing market, a good infrastructure (including schools and other social institutions), and a low level of social problems. The city must avoid slums, high levels of criminality, and social unrest to be attractive. Too-wide income differentials might reduce economic growth partly by creating greater uncertainty and higher risk of social unrest. See Persson and Tabellini (1994). .If this is a correct view of what it takes to make a city attractive, then social criteria would come to play a bigger role in planning. If we compare with Thatcher Style planning, and perhaps American Style planning, one goal common to each municipality is to keep problems out of their municipality - and let other municipalities try to solve them. Globalization Style planning might be closer in content to the Coasian Style planning. The local actors would continue to invest in the region as long as the gains in terms of their share of the profits from firms are greater than their share of the costs. As I will revisit in the next section, many interesting questions remain concerning the relationships between the different types of market-oriented planning.
Market-oriented planning has been discussed intensively for a number of years. The purpose of this article was to identify a number of distinct types of planning that have been discussed under this heading. In the table below we summarize the different types, and the distinguishing characteristics of each. If we should try to rank the different styles from the perspective of how active the local government is, the order would probably be: New Nordic Style, Globalization Style, American Style, Coasian Style and Thatcher Style. However, such a ranking conceals important features of these planning styles, as there are differences in several dimensions.
TABLE 7: An Overview of the Different Types of Market-oriented Planning
It is important to distinguish these different types in a number on contexts. For example:
1. It is important to understand the dynamics of planning in different countries. It is not very clarifying to say only that there has been a move towards more market-oriented planning. We have seen clear differences between what here is called the New Nordic Style, Thatcher Style and American Style of market-oriented planning. In several countries, there seems to have been a movement towards a Globalization Style in the last decade. The categorization above seems to be a useful tool for a more precise description of what has happened, and a fruitful starting point for explanations. For example, why did the changes in the planning system take a certain form in a specific country?
2. It is important to understand the consequences of changes in the planning system. The analysis above shows that it is not meaningful to discuss the consequences of a more market-oriented planning unless one first clarifies what type of market-oriented planning one is thinking about. The different types of market-oriented planning can be expected to have very different consequences with respect to, for example, how efficient land use patterns will be, and the role of social dimensions in planning.
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