High development land prices and the realities of urban property markets

Abstract

The current debate about high development land prices should end with a solution to a problem that has dogged this country since the introduction of rural planning in the 196Os. Then, as now, the spectacular transfer of wealth to particular landowners on foot of planning decisions generated a sense of injustice about a system that was supposed to work in the interests of the state as a whole. Most people have an instinctive feeling that any law causing the transference of vast wealth for little or no effort or input by the recipient is simply and plainly wrong. This paper is intended as a contribution to this debate. It draws on the residual land price theory and sees high development land prices as an unintended effect of our planning system and not a cause of high property prices. As a starting point the paper looks at some of the circumstances around the introduction of rural land-use planning to Ireland in the early 1960s and suggests that the system of planning in Ireland was not informed by a sufficient understanding of urban, property and, more particularly, housing economics. This it is argued remains the case and is at the heart of the difficulties with high development land values. It further suggests that property and housing markets have characteristics that set them apart from other markets but that in Ireland economists, planners and other policy makers do not adequately appreciate these. A number of characteristics are then discussed by way of illustration. The paper goes on to suggest that as a result the quality of government intervention in land and property markets is likely to be poor and that policy instruments and legislation used to regulate land and property markets are often flawed. With that in mind the paper then focuses on development land. It suggests that the Planning Act 2000 is impaired in that it prevents local authorities capturing the wealth they create by providing infrastructure and that this is the root cause of the problems associated with high development land prices. A specific approach is then proposed to remove the suggested impairment. This is based on a concept that sees development land as a product of humankind and not the bounty of nature. It is argued that the concept of development land underlying the implementation of the 1963 Planning Act owed much to inherited agrarian traditions and much of the debate about methods of dealing with high development land prices takes that understanding as a given. This paper argues that we need to re-conceptualise development land in a way that is more suited to an urban and industrialised society and if this were done, a solution to high development land problems could be implemented. Finally with this in mind, a specific proposal is made to amend the Planning Act 2000 in a way that could act as a tipping point to achieve substantial reform.