In this week’s Friday Fight, a debate series in which two writers make their case on a hotly contested topic, the question is: does the planning system do more harm than good? As rents rise, property prices soar and the housing crisis reaches a boiling point, the focus has turned to supply as governments mull over reforms to the planning system.
In the negative corner, we have economist Cameron Murray. Arguing in the affirmative is lead organiser of YIMBY Melbourne Jonathan O’Brien.
I hate bureaucratic waste. I’m an economist after all.
Town planning regulates where different land uses can go. Like all bureaucracies, the planning system contains waste. No one argues otherwise. Like all bureaucracies, we must vigilantly ensure is it functional, effective and up to date.
But that doesn’t mean the planning system does more harm than good. Far from it.
I make this case here in three ways:
- Unplanned cities now and historically have terrible outcomes;
- Private property owners enact planning rules because of their net benefits;
- Popular arguments about the harms of planning are simple misunderstandings.
Unplanned cities
The New South Wales colony in 1836 was unplanned. The population of Sydney was fewer than 20,000 people. Biologist Charles Darwin visited on the HMS Beagle in January of that year, and before he noticed the wildlife, he noticed the people. In his first day’s diary entry, he wrote that “the number of large houses just finished & others building is truly surprising; nevertheless, everyone complains of the high rents & difficulty in procuring a house.”
In the 1800s, Australia’s growing but unplanned and unregulated towns saw multiple boom and bust property cycles, stretching even as far as Perth in the 1880s, with its population of fewer than 8,000 people.
By 1911, the housing problems led to the New South Wales government launching an inquiry into rising rents, which led to Australia’s first rental regulations in 1915.
Australian cities in the inter-war period fared poorly in terms of housing quality and price despite unregulated land uses in cities (apart from necessary roads and thoroughfares). The slum conditions that emerged led to the Victorian Slum Abolition Inquiry in 1937.
Property markets did not deliver abundant homes without planning. In a review of interwar housing conditions in 1947, F. Oswald Barnett wrote:
“The present system, under private enterprise, provides houses for letting only when it is profitable for the investor to provide them. If it had been profitable commercially, private enterprise already would have met the demand. Private enterprise cannot profitably house the lower-paid worker or the poor except by a disastrous lowering of housing standards. This would inevitably mean a lowering of our national standards of living.”
In unplanned cities, housing was scarce, low-quality and unaffordable. This is still true in unplanned slums in cities globally.
Markets love rules
Cities adopted planning rules to coordinate land uses and improve building standards. When private companies can do so, they choose to adopt similar planning rules. People value coordinated and planned land use and growth.
Nobel Prize-winning economist Joseph Stiglitz explained decades ago that city managers should invest and regulate to maximise the value of property. This boosts welfare, since people will pay more to relocate to cities and suburbs that offer a better quality of life.
This economic logic is why large private developers create masterplans that dictate allowable uses. They also often attach covenants to each block they sell that restrict what the new owner can build. These covenants are much tighter regulations than council planning rules and dictate all manner of design and landscaping requirements (e.g. here, here and here).
Cities that do not regulate land use tightly often find that privately enacted land use regulation emerges. Since predictable patterns of growth and quality standards are desirable, these rules will emerge in the market, showing that their benefits outweigh potential harms.
Misunderstandings
Regulating land uses is not costless. Some rules can cost certain property owners whether or not they create broader benefits to the city.
But the popular claim that planning imposes costs via regulating the rate of production of those uses, particularly housing, is wrong. These costs, so the argument goes, come from higher rents and prices that result.
The number of homes built in a period is the product of both the density of housing in each project, something planning can regulate, and the number of projects built, something planning does not regulate. Any property developer can build two different projects at a lower density if they want to build a certain number of new homes.
Just as lane markings on the road dictate where mobile land uses go, the lanes don’t regulate the speed or how many people use the road. The same is true of planning.
Whether the city is planned or not, the same property cycle leads to periods of apparent shortages because of market incentives, just as Barnett observed about the inter-war period. It is that cycle causing the rents and prices seen today not just in Australian cities, but globally.
In fact, Australia’s cities are world housing production leaders. We forget that in 2019 we had falling rents and a supply glut in Sydney. How did planning cause this? Or are property markets doing what they always do, regardless of planning?
Crikey’s editors would like to commend Cameron Murray for being the first debater who managed to meet the exact word count down to the word.
Read the opposing argument by Jonathan O’Brien.
Are property planning rules a net benefit to society? Or are they contributing to the housing crisis as we know it? Let us know your thoughts by writing to letters@crikey.com.au. Please include your full name to be considered for publication. We reserve the right to edit for length and clarity.
