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Answers to Economics Questions – New Planner Article

It is common for the planning and development industry to deal with questions and opinions relating to economics that lack appreciation of the practical realities in our industry.

Too often our industry has taken hits from politicians, policy influencers and policy makers who either don’t, or don’t choose to, make the effort to understand that land use planning and development is more sophisticated than the simple demand and supply graphs taught in high school economics.

To assist the non-economists amongst us, five answers to economics  related questions you may receive are provided below in the hope they come in useful someday.

Question:            Isn’t the land market just a matter of demand and supply?

Yes. But not in the fast and efficient way it works for many other products and services.  Three reasons spring immediately to mind, although there are many others.

Firstly, land is a finite resource. As the old saying goes ‘buy land, they’ve stopped making it!’.

Secondly, land is an asset that is heavily used as security on bank debt. This often means that the old fashioned laws of supply and demand don’t work so well in the buying or selling of land. For example, an investor may be unable to sell a property as it is security on a totally unrelated financial transaction.

Thirdly, land is something that varies widely in characteristics and quality – it can be flood prone, contaminated, sloping or any of a thousand different things that limit what it can be used for.

Question:            Does the planning system make housing unaffordable?

The planning system has some influence on house prices, but in reality this is generally only a small factor when considered relative to a wide range of other influences.

For example, median prices in Broken Hill and the far west of New South Wales (which has experienced population decline) have increased at a faster rate in percentage terms than those in Greater Sydney (which has experienced population growth) over the period 2004 to 2014. Quite clearly planning constraints cannot explain the higher rate of house price growth in Broken Hill and the far west, where there are no issues with a lack of housing supply.

The reality is a highly diverse range of factors such as tax policy, interest rates, bank lending standards, wages growth and even share prices, all work together to influence house prices. Planning policy and land supply is but one part of a very complex equation.

Question:            How can you value liveability?

With difficulty. A great economic argument in favour of planning is that good land use planning has a value for society in terms of liveability, social cohesion and overall amenity.

Unfortunately, placing an exact value on this is very difficult despite the very noble efforts of some economists. What we need to be mindful of is that these benefits have broad financial, social and environmental aspects that are very real in the long-term. Just ask any New Yorker if they think Central Park has added value to liveability.

Question:            Why does planning seek to reduce competition in the retail sector?

It doesn’t.

Competition between individual businesses of itself is not a relevant planning issue. Property and planning lawyers regularly raise this in cross-examination and when arguing case law.

Question:            What makes land use planners think they know how we want to live?

Planners care about ensuring land and resources are used for the economic and social well-being of the community – as stated in the Environmental Planning and Assessment Act.

In informing views on how this is achieved, the land use planning and development industry spends massive amounts of time and energy consulting and seeking insights from the community. Indeed, if one chooses to, the entire planning system is remarkably open to public participation and input. So if you think planners don’t understand what people want…. get involved!!