Smart growth has moved from the domain of policy analysts into more general acceptance. It is championed by national leaders such as Vice President Al Gore, governors (Parris Glendening of Maryland), urban mayors (William A. Johnson of Rochester, New York), non-governmental organizations (National Trust for Historic Preservation), and the private sector (Urban Land Institute). Voters in many California cities, including Sacramento, Santa Barbara, Irvine and Davis, and in numerous suburbs around San Francisco have approved urban growth boundaries (UGB) as one type of intervention to contain sprawl development.

Urban containment policies are not limited to environmentally active communities in California, Oregon or Colorado, or booming economies in states such as Florida, however. Lexington, Kentucky, observed the 40th anniversary of its urban growth boundary last year, and Sioux Falls, South Dakota, has had a containment boundary for many years. This kind of broad-based popular support for smart growth policies is more than simply a growth management fad and is likely to increase, particularly as long as the national economic expansion continues. Indeed, urban containment appears to be building a kind of momentum as a land use policy that has not been seen since the Supreme Court’s sanctioning of zoning in Ambler Realty Co. vs. Euclid, Ohio.

Urban containment planning has two basic purposes: (1) to promote compact, contiguous, and accessible development provided with efficient public services; and (2) to preserve open space, agricultural land and environmentally sensitive areas that are not currently suitable for development. Urban containment consists of drawing a line around an urban area within which development is encouraged, often with density bonuses or minimum density requirements, to accommodate projected growth over a specified future time period, typically ten to twenty years. Land outside the boundary is generally restricted to resource uses and to very low-density residential development by limiting the extension of utilities, wastewater services and other infrastructure.

Intuitively, however, this sort of land regulation appears to be a double-edged sword. On the one hand, measures aimed at reducing traffic congestion or infrastructure costs, or improving the aesthetic quality of urban areas, are appealing. On the other hand, measures that are seen to limit land supply and potentially cause housing prices to increase are unappealing, particularly to those seeking to expand the stock of affordable housing.

To explore the implications of these two faces of urban containment as smart growth policy, the Lincoln Institute and the Fannie Mae Foundation convened a group of scholars and practitioners for a symposium in Cambridge last February. The economists, planners and other researchers in attendance discussed the existing literature on urban containment and identified questions for future research that could inform policy making in this dynamic area of land regulation.

Housing Price Effects

Housing costs reflect the price of land, the price of the house and the value of amenities. Urban containment policies change housing costs for two reasons. First, land prices change when land supply is altered. Second, if urban containment increases the value of the amenity package associated with a house, then that, too, will cause a change in house prices. Much of the discussion at the symposium centered around these two theoretically distinct aspects of the housing price problem.

Most economic literature assessing urban containment argues that it raises land and housing prices principally by constraining the supply of land and/or by failing to accommodate new demand for serviced land. But, others argue that urban containment systems, when coupled with increased densities within the growth boundary, should not adversely affect supply and, indeed, should generate benefits to residents. This latter view shifts the focus away from the microeconomic theory of price determination to housing economics, which introduces the concept that house prices capitalize the value of neighborhood amenities.

For example, the increased densities within an urban growth boundary can make it practical to extend or enhance existing public transit, thus yielding greater accessibility. In addition, increases in densities can result in lower costs to provide urban services by the public sector. Similarly, higher neighborhood densities can lead to more interactions with neighbors and more “eyes on the streets,” which, in turn, can translate into lower crime rates. Finally, if urban containment is successful in preserving open spaces, house values in neighborhoods near the preserved open space should also rise.

All of these benefits can be counted among the amenities that give value to a house and are ultimately capitalized in its value, even while the land supply restriction can also put pressure on house prices. In truth, both factors may be at work, and we still have much to learn about their impacts. Furthermore, some of these internalized benefits may have different values for households at different income levels.

A comparison of Atlanta, Georgia, and Portland, Oregon, both suggests of these sorts of benefits and points to areas for future research to answer these questions more comprehensively (see Table 1). During the first half of the 1990s, Portland experienced a large increase in housing prices (approximately 60 percent compared to almost 20 percent in Atlanta, in nominal terms). Between the mid-1980s and the mid-1990s, homeownership rates in Portland increased by nearly 5 percent while Atlanta’s rate remained virtually unchanged. Finally, perceptions of improved house quality were greater among Portland residents than those in Atlanta. In both metropolitan areas and in both time periods, the proportion of household income spent on housing was virtually the same, suggesting that income growth in Portland exceeded that in Atlanta. However, it is difficult to conclude definitively that increases in house quality in Portland were due to enhanced amenities conferred on households by changes in land regulation, rather than to rising incomes.

Although urban containment policies may stabilize the supply of land, they usually increase the supply of development opportunities. Such policies are typically accompanied by “upzoning” whereby land zoned formerly at one level of development intensity is changed to allow for a higher density. One strategy to increase densities is to infill and redevelop (or “refill”) urban areas at higher than extant levels through the adoption of “minimum intensity” zoning. We do not know the subsequent effect of such policies on house prices, and we know even less about their effect on household budgets and disposable income. For example, higher housing prices may simply reflect capitalization of more efficient development patterns that reduce expenditures in other parts of the household budget.

It is possible, however, that current and future homeowners will benefit directly from these sorts of capitalized savings. For example, location-efficient mortgages, a lending instrument being tested in a few markets, allow lenders to extend mortgages to households based on a higher mortgage-to-income ratio. The rationale for altering the income eligibility is that, in comparison to suburban households, urban households can substitute walking and public transit for automobile payments, including both capital costs and operating expenses. Thus, disposable income is effectively increased as non-housing expenditures decline. Current experiments with the location-efficient mortgage are underway in Chicago’s northside neighborhoods and in central Seattle. If default rates for these loans are similar to those for traditional mortgages, we may see greater adoption of this instrument in appropriate submarkets.

Other savings that may accrue to urban homeowners as a result of containment policies are lower taxes due to lower capital costs or increases in supplemental income if higher densities are achieved through the addition of accessory apartments in existing houses.

Landowner Behavior Implications

The imposition of urban containment policies and changes in density are also likely to result in changed expectations of landowners. Therefore, an additional consideration for researchers, which the symposium participants confronted, is the role of containment in affecting the nature of landowner behavior with respect to land acquisition and land development.

In an environment of a relatively inexhaustible supply of land, speculation can be reasonably efficient while the competition to sell land keeps prices low. The end result may be that housing prices will not be affected materially. However, when supply is constrained, even if upzoning increases development capacity, the number of players in the land market can fall and cartels may form. Furthermore, an assumption of urban containment policies is that undeveloped land inside the boundary will come on-line in sufficient amounts and at appropriate times to sustain development. There is no research into this, however. Will owners of land, knowing they hold an oligopolistic position in the land market, delay its sale to get a higher price?

Until now, in our studies of urban land markets, we have lived with the assumption of relatively inexhaustible (i.e., elastic) land supply. Urban containment policies can change that premise by making land an exhaustible commodity, resulting in the problem of dual predictability. On one hand, developers are given more certainty in whether and how they develop land; on the other hand, landowners know that land supply will become exhaustible and therefore they may be enticed to become speculators, in their own right. Will local governments reward those willing to develop vacant or underused parcels with higher densities to offset others who delay sale? Certainly, a land tax is expected to limit this sort of behavior. Can other changes in the tax regime encourage development within the UGB? For all of these reasons, we have much to learn about the effect of urban containment on landowner and speculative behavior.

Summary Observations

The symposium participants spent more time on the economic issues related to urban containment than on environmental concerns. However, some material was presented that suggested significant environmental benefits as a result of urban containment. Table 2 presents additional comparisons of Portland and Atlanta between the mid-1980s and the mid-1990s. While vehicle miles traveled increased in both places, Portland experienced little change (2 percent) whereas Atlanta experienced a significant increase (17 percent). At the same time, Portland’s average commute times fell, air quality improved, and per capita energy consumption declined.

All of these indicators suggest that Portland is different from Atlanta in meaningful ways. Furthermore, typical behavior by individuals in each of these metropolitan areas is presumed to be different. We should attempt to find out the degree to which growth containment policies account for these behavioral differences and whether there are other policies that may also play important roles in affecting the economic and environmental dynamics of metropolitan regions. For example, the problem of housing affordability remains a serious concern in most cities, whether with or without urban containment boundaries.

Urban containment creates an entirely new regime in urban planning and development decision making, offering research challenges because of the difficulties in developing methodologies that can tease out complex interactions and frame the results in a manner that can advance both public and private interests. The Lincoln Institute, the Fannie Mae Foundation and the U.S. Department of Housing and Urban Development are among a growing number of research entities interested in pursuing these challenges.

Arthur C. Nelson is professor of city planning, urban design and public policy at the Georgia Institute of Technology in Atlanta. He organized the seminar referenced in this article and has researched and written extensively on this topic.

Numerous convergent trends motivated 40 academics and practitioners from 15 countries to meet at the Lincoln Institute in July 1998 to discuss recent land market reforms. First, the recognition that the world’s population is becoming increasingly urban and so the quantity of land converted to urban use is expected to rise significantly. Second, evidence that a major proportion of the world’s poorest households now lives in urban areas (e.g., 80 percent in Latin America). Third, the perceived sea change in the role of government shifting away from intervention and regulation toward more selective urban management. During the three-day workshop, participants presented papers and discussed the rationale behind recent legal and institutional reforms, the nature of the transition from customary or informal to formal markets, evidence for improved land market efficiency, and access to land for the poor.

Legal and Institutional Reform

Several participants made the case for institutional reform of land markets in different ways. Steve Mayo (Lincoln Institute) drew conceptual and empirical links between the performance of property markets and the macro economy. He noted that poorly functioning land markets influence wealth creation and mobility rates which, coupled with particular finance conditions, could aggravate macro-economic instability. Drawing data from the Housing Indicators Program he showed that the prices of raw and serviced land tended to converge with higher land prices, indicating larger land development multipliers at lower prices. He also noted a relationship between the price elasticity of the housing supply and the policy environment.

Although there is a perception that reforms toward ‘enabling’ policy environments are now widespread in developing and transition economies, Alain Durand-Lasserve (National Center for Scientific Research, France) observed the rarity of explicit reference to ‘land market reform’ in political statements in Africa. Indeed, he argued that the ideological underpinning for freer land markets was more advanced than the practice of establishing the prerequisites for effective and unitary markets. In practice, a number of papers indicated competing political agendas, legal ambiguity and diversity of progress in the reform process.

“The law can be reformed, history cannot,” said Patrick McAuslan (Birkbeck College, London) in discussing the role of the law as a necessary basis for effective land market reform. He described the evolution of the recent Land Act of Uganda, which seeks to establish a land market based on individual ownership. He commended the government for dovetailing the reform process with extensive public debate, but noted that drafts of the Act set up new contradictions in a century-long history of competing land relations between freehold, customary tenure and nationalized public lands. His paper outlined a series of ‘time-bombs’ left by colonial administrations and aggravated by post-independence governments, only some of which are addressed by the new legislation.

The inconsistent nature of reform appears to be particularly acute for the transition economies of Eastern Europe and Southern Africa. In Eastern Europe, the legacies of communism have led to inappropriate land uses and the assignment of non-monetary values to property. Legal changes toward land privatization, however, have been slow. Tom Reiner (University of Pennsylvania) argued that despite a strong normative case for privatization and latent demand in the Ukraine, current laws make no provision for freehold sale. He presented data to show that privatization would yield considerable macro-economic and fiscal benefits: direct sales revenue alone would amount to $13 billion, plus increased taxes and more efficient resource allocation.

In Russia, according to Jan Brzeski (Crakow Real Estate Institute), the emergence of land markets has been inhibited by a different understanding of the social role of property and turf politics. In Poland, where privatization is more advanced, he argued that reforms have been insufficient to overcome extensive resource misallocation. Assignation has taken place at symbolic prices without reforms to ground rents or property taxes, and with high transaction costs. Nevertheless, land market turnover is increasing faster than economic growth and re-sales represent about 25 percent of capital investment.

The1991 privatization program in Albania appears to have stimulated an active property and land market. Research by David Stanfield (University of Wisconsin-Madison) indicates substantial increases in turnover rates and increasing prices, but also extensive conflicts between pre-collectivization and post-privatization holders, contradictions in the many laws and errors in the new documentation. The research points to the relative ease of establishing frameworks for privatization but greater difficulties in allowing markets to function thereafter.

Lusugga Kironde (University College of Lands and Architectural Studies) described how shortcomings in the ‘planned’ allocation system in Tanzania meant that 60 percent of people acquired land through informal methods. This in turn denied revenue to the government since transactions were outside official sanction and in some cases well-off households received plots with a substantial subsidy. Michael Roth (University of Wisconsin-Madison) described a similar situation in Mozambique, where the legacy of state socialism is still felt in the level of government intervention and under-representation of freehold tenure.

In both countries, the assessment of reform was mixed. Tanzania’s New Land Policy (1995), while a useful step in accepting the existence of a land market and providing security to plots with customary tenure, has fallen short of removing the barriers to an effective land market. In particular, Kironde noted that the new measures concentrated decisions in a Land Commissioner despite a national policy of administrative decentralization. The policy offers no incentive to encourage the formalization of informal practices and no stake to ensure the compliance of important middlemen. In Mozambique, since the late 1980s, market-oriented reforms have produced unclear administrative responsibilities and uncertain land rights. One feature has been land disputes with households calling upon newly empowered producer associations to defend claims. The 1997 reforms attempt to guarantee tenure security, provide incentives for investment, and incorporate innovative ideas for community land rights.

In Latin America, reform has been less concerned with establishing markets per se and more with improving their function, especially land reforms motivated by largely rural concerns but which have important urban impacts. Rosaria Pisa (University of Wales) indicated that reforms in Mexico have created the necessary conditions for the privatization of community (ejido) land, but progress has been slow. Less than one percent of land has been privatized in five years due to other government interests and legal ambiguities that have established a second informal land market.

Carlos Guanziroli (INCRA – the National Institute on Colonization and Agrarian Reform, Brazil) argued that rural reform was producing land use diversity, especially through the survival of small family farms. Reform was also affecting Brazil’s urban land markets as capital switched from rural to urban areas, probably raising urban land prices. Francisco Sabatini (Catholic University) argued that the liberalization in Chile had not reduced land prices because landowners’ and developers’ decisions are influenced less by regulations and more by demand.

Overall, the consensus on whether reforms were producing unitary and less diverse land markets was unclear. Agents and institutions are proving to be very adaptable to new conditions, a point made for all three regions. Ayse Pamuk (University of Virginia) argued that, based on her analysis of informal institutions in Trinidad, researchers should look away from formal regulations as a barrier to land market operation. Instead, they should consider how social institutions such as trust and reciprocity were producing flexible solutions to tenure insecurity and dispute resolution.

Clarissa Fourie (University of Natal) described how user-friendly local land records could be merged with registries on marriage, inheritance, women’s rights and debt to produce a useful tool for land administration in Namibia. Nevertheless, she noted that the incorporation of customary practices into land administration to provide security of tenure would mean some adaptation of social land tenure systems. Pointing to research in Senegal and South Africa, Babette Wehrmann (GTZ, Germany) argued that customary and informal agents were flourishing and providing high-quality sources of market information.

The Formalization and Regularization of Land Tenure

Peter Ward (University of Texas at Austin) described the diversity of regularization programs across Latin America, where some countries consider it to be a juridical procedure and others regard it as physical upgrading. Regularization may be an end in itself (mass titling programs), or a means to an end (to develop credit systems). Ward argued that the differences among programs stem from how each government ‘constructs’ its urbanization process and represents this vision back to society through laws and language.

Edesio Fernandes (University of London) explained how Brazil’s Civil Code dating from the beginning of the century created a system of individual property rights that restricted the ability of government to regularize favela communities. The 1988 Constitution attempted to reform this situation by acknowledging private property rights when accomplishing a social function. Nevertheless, legal tensions within regularization programs have failed to integrate the favelas into the ‘official city,’ leading to some politically dangerous situations.

Under different circumstances, South Africa produced a regulatory regime that denied freehold tenure to black households or offered only complicated non-collateral permits to the few. Lauren Royston (Development Planning Alternatives, Johannesburg) outlined how the country’s Land Policy White Paper contemplates legally enforceable and non-racial rights, a wider range of tenure options and opportunities for communal property acquisition.

The two developing countries with the most extensive mass titling programs, Mexico and Peru, were scrutinized by Ann Varley (University College, London) and Gustavo Riofrio (Center for the Study and Promotion of Development – DESCO, Lima). Varley assessed two prevailing assumptions that run through the contemporary policy literature: that decentralization produces more effective land management, and that the regularization of customary tenure is more complicated than the regularization of private property. In Mexico, despite the rhetoric of decentralization, a highly centralized system has been increasingly effective in providing land regularization to settlements on ejido land. On the other hand, the regularization of private property is tortuously long and frequently produces poor results. She commented with some concern on the current trends in Mexico to convert ejido land to private ownership and to move toward greater decentralization.

Riofrio questioned the validity of the claims made for land regularization in Peru. He noted that in reality household interest in property title was quite low, not least because records are inaccurate and therefore offer less security than promised. Moreover, only an incipient housing finance market has emerged, based on the regularized properties. Households are wary of debt but are willing to borrow small sums for micro-enterprises and consumption secured on their housing.

New Social Patterns and Forms of Land Delivery

Would liberalization produce more segregated land markets? Brzeski noted that state planning in Eastern Europe has left a legacy of spatial equity and few informal land holdings, but that it would not last forever and planners need to take this into account in instigating reform. In countries with notable levels of social segregation, such as Chile, Colombia and South Africa, less predictable trends are emerging. Sabatini’s data indicated less spatial segregation in Santiago despite liberalization as intermediate spaces are developed, around malls for example, and as new lifestyles are reflected in ‘leisure home’ developments outside the metropolitan area.

Carolina Barco (University of the Andes) argued that new measures in Colombia, specifically the 1997 Ley de Ordenamiento Territorial, will allow the government of Bogota to capture land value increments and transfer these revenues to public housing and other projects. This process is still problematic, however, even in a city with considerable experience in the use of valorization taxes.

In South Africa, strategies to cope with the ‘land hunger’ of the post-apartheid city, especially the Development Facilitation Act nationally and the Rapid Land Development Program in the province of Gauteng, have offered fast-track land release but have performed less well against the principles of equity and integration. Royston explained that the result has been a large number of invasions and the speeding up of land delivery through local government on the urban periphery that does not challenge the ‘spatial quo.’

Changing the method of land delivery and government stakeholding has the potential to affect segregation and access to land. Geoff Payne (Geoff Payne and Associates, London) outlined the principles and practices of public/private partnerships in developing countries. Although much heralded in international policy, research in South Africa, India, Pakistan, Egypt and Eastern Europe has shown that such partnerships had undersold their potential.

Crispus Kiamba (University of Nairobi) outlined a transition in Kenya from government-sponsored schemes, which left the informal and formal circuits separate, to new approaches with greater NGO involvement, ‘group ranches’ and partnerships. In Mexico, too, partnerships are seen as one method to eliminate the cycle of illegality and regularization. Federico Seyde and Abelardo Figueroa (Mexican government) outlined a new program called PISO, which, despite numerous bottlenecks when compared to previous interventions (e.g. land reserves), was proving more effective.

Land Markets and Poverty Reduction

In my opening remarks I argued that most research on markets considered poverty as a legitimate context, but thereafter seemed more concerned with market operations than with how these operations might affect poverty. In the final session, Omar Razzaz (World Bank) outlined a proposal for linking land market operation to poverty reduction. The ‘Land and Real Estate Initiative’ aims to investigate ways to improve the liquidity of land assets and access to the poor through re-engineering land registries (improved business processes), developing regulatory infrastructure (the exchange-mortgage-securitization continuum), and accessing and mobilizing land and real estate by the poor. The appropriateness of this initiative generated considerable debate, which may help in refining ideas that could benefit the 500 million people living in urban poverty in developing countries.

Gareth A. Jones was the program developer and chair of the workshop.

How have infrastructure investments shaped global city regions? What have been the effects on the residents? Do the effects differ among residents in different sections of the city? Is the process different by type of infrastructure, such as highways, mass transit, airports or seaports? What if high-technology telecommunications infrastructures are included among our considerations? When the forces of globalization and technological change interact, do cities fare differently? Do their residents experience these changes differently?

These were among the questions generated at the second meeting of the global city regions consortium coordinated in July by Roger Simmonds, senior lecturer of planning at Oxford Brookes University. Most of the participants at the first conference held at the Lincoln Institute in September 1995 reconvened in El Escorial, Spain, to present the results of their latest research on the relationship between the location and timing of infrastructure development and the spatial form of the region. Teams from 11 city regions made presentations: Ankara, Turkey; Bangkok, Thailand; Madrid, Spain; San Diego, California; Santiago, Chile; and Sao Paulo, Brazil; Seattle, Washington; Taipei, Taiwan; The Randstad, Holland; Tokyo, Japan; and West Midlands, England.

Commenting on the relationship between infrastructure, governance and regional planning, Pedro Ortiz Castano, director of planning for the municipal government of Madrid, described the municipality’s extensive infrastructure plan. Existing highways, roads and transit lines will be woven together with other planned development to cover the region in a matrix or grid. This configuration is meant to reduce congestion and increase accessibility across city sectors as well as among social and economic classes.

Madrid’s grid-system of infrastructure and settlements presents a sharp contrast to the concentric rings of highways found in Seattle, as described by Anne Vernez-Moudon, professor of architecture and urban planning at the University of Washington. Despite the presence of Puget Sound to the west and the Cascade Mountains to the east, Seattle reflects the typical North American affection for beltways. Furthermore, with one highway dubbed the “Boeing Beltway,” the relationship between government-funded infrastructure and the private sector is clear.

This comparison also illustrates the role of Madrid’s strong regional government in attempting to have infrastructure-whether government-funded or privatized-shape the urban form. In most global city regions with weaker governments, infrastructure only plays catch-up with existing demand.

Consortium commentator Gary Hack argued that the polynucleated ‘spread city’ is the more typical reality, usually accompanied by an increase in spatial segregation by class. Since the powerful economic and technological forces at work around the globe are likely to accelerate and reinforce these trends, he concludes that planners should focus on specific sites within city regions where they can exert their influence with the most positive results.

The comparative analysis between Ortiz’s metropolitan-wide infrastructure plan and Hack’s site-specific approach reminds us that, despite the similarities among forces shaping city regions across the globe, the ways these forces play out vary widely. These variances reflect important differences in institutional arrangements, history, culture, attitudes about private property, and notions of the public interest, among other factors. Furthermore, these differences also affect how researchers see their own cities in comparison to others.

The role of informal markets, for example, illustrates the challenge researchers face in attempting to understand both the unique and common features of international forces. While it is hard to understand land markets and land use in cities as different as Ankara and Santiago de Chile without understanding the informal sector, western European and North American researchers rarely attempt to understand their cities’ land markets from this perspective.

The regional city teams are continuing to work on their respective reports in preparation for publication of a book by International Thomson Publishing in the United Kingdom.

Rosalind Greenstein is a senior fellow of the Lincoln Institute and director of the Program on Land Use and Regulation.

In four years, there will be a fresh count of Americans. The 2000 Census will reveal how many of us there are, who we are in terms of race, nativity, income, family size and occupation, what kind of housing we occupy, where we live and where we work.

All these numbers, but especially the latter two, will reflect what is happening to what planners and social scientists call settlement patterns. The Census will show how people and jobs are distributed regionally between North and South and East and West; within regions between metropolitan and non-metropolitan areas; and within metropolitan areas between cities and suburbs.

Settlement patterns have been transformed radically in the twentieth century (see graph 1). On a regional basis, the trend has been from East to West and North to South. In the decade between 1980 and 1990, for example, three states in the West and South accounted for 50 percent of the nation’s population growth: California, Florida and Texas.

Within all regions, the trend has been toward ever larger metropolitan agglomerations. By 1990, metropolitan areas of 1,000,000 or more accounted for 50 percent of the nation’s population. Within metropolitan areas, cities grew faster than suburbs at the beginning of the century, but by the 1950s the trend was sharply in favor of the suburbs, which now account for more than half of the nation’s population.

Will the 2000 Census confirm the continuation of these trends? What stakes do we have in the outcome? Quite a few. We worry about trends that erode the economic base of cities because we are concerned about job opportunities for the poor who are committed, by choice or circumstance, to live in the city. We are also concerned about the health of the tax base, which affects the capacity of the local government to deal with the needs of all its residents.

We also worry about land use patterns in the suburbs which both require and increase auto-dependency. This trend in turn leads to more auto travel, aggravates congestion, pollutes the air, and complicates our international relations because of our heavy dependence on imported oil.

We are in the throes of a revolution comparable in scope to the revolution in transportation technology that heavily influenced settlement patterns in the nineteenth and twentieth centuries. The transportation revolution, from ships and trains to cars and planes, made it possible for both workers and their employers to have a wider choice of locations.

The pace of the revolution in data processing and communications, which began slowly in the middle of the twentieth century, has quickened rapidly in recent years. We speak of a post-industrial information economy. By that we mean that information constitutes an ever-increasing share of the Gross National Product, both as “input” to the production of other goods and services and as “output” in the form of entertainment and related activities.

Household Location Decisions

How will settlement patterns be affected by the transition to an information economy? Let us first consider the worker’s choice of a residential location. In classical urban economics, this choice is seen as a “trade-off” between the merits of a particular place in terms of quality of life and the cost of commuting to work. As the transportation revolution reduced the time and money costs of commuting, more and more workers were able to afford to locate in what they considered an attractive suburb that offered the lifestyle they preferred: a private home with a lawn, good schools, parks and open space, shopping facilities, and friendly neighbors.

The New York Times of July 14, 1996, reports that because of the revolution in communications and data processing, accompanied by company downsizing, as many as 40 million people work at least part time at home, with about 8,000 home-based businesses starting daily.

Logic suggests that some of this new-found workplace freedom will manifest itself in location choices that favor places considered desirable, be they in the farther reaches of suburbia, exurbia, or rural America. On the other hand, if these dispersed self-employed workers end up commuting less, their freedom may not “cost” the society more in terms of congestion and pollution.

Business Location Decisions

What about the conventional company and its location decisions? Like the household, the company does a “balancing” act when it chooses a location. From the perspective of product distribution, Place A might be preferred. From the perspective of the inputs of materials, Place B might be ideal. From the point of view of labor costs, Place C might be best. For tax purposes and related “public” issues, Place D might be most beneficial.

If the entire company has to be in one place, then compromise is inevitable. But if the communications revolution permits the “dis-integration” of the company via the physical separation of functions or the “outsourcing” of particular functions, then what used to be one location decision becomes a multiplicity of decisions, each component responding to a compelling argument for a particular place.

The classic example is the “front” office of a bank or insurance company in the midst of a congested city center with the “back” office in a rural area in another region or even in another country.

Settlement Trends

How these changes in household and business location choices will ultimately affect settlement patterns in metropolitan America was the subject of a major study by the Office of Technology Assessment (OTA), an agency that served the U.S. Congress for many decades but was abolished by the Congress in 1995. The summary chapter in The Technological Reshaping of Metropolitan America states that “technology is connecting economic activities, enabling them to be physically farther apart, reducing the competitive advantage of high-cost, congested urban locations, and allowing people and businesses more (but not total) freedom to choose where they will live and work.”

But OTA concludes that “the new wave of information technologies will not prove to be the salvation of a rural U.S. economy that has undergone decades of population and job loss as its natural resource-based economy has shrunk.” Rather, most economic activity will locate in large and medium-sized metropolitan areas (see graph 2).

“Technological change. . .threatens the economic well being of many central and inner cities, and older suburbs of metropolitan areas,” the report continues. Overall, the trends suggest that these places will find it hard to compete without economic development policies designed to offset their competitive disadvantages.

In short, the OTA expects that, the communications revolution notwithstanding, the 2000 Census will report a continuation of the trends manifested throughout the latter half of the twentieth century. The favored locus of activity in both residential and business terms will be the outer suburbs of metropolitan areas. Given our concerns with the adverse effects of prevailing settlement patterns, the challenge to land policy is greater than ever.

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Benjamin Chinitz is an urban economist who served as director of research at the Lincoln Institute from 1987 to 1990. He continues to serve as a faculty associate at the Institute and as visiting professor in urban and regional planning at Florida Atlantic University.

Thomas Horan is director of Applied Social and Policy Research at Claremont Graduate School in Claremont, CA.

The land market allocates land and access to urban amenities, and it does so with impressive efficiency. Yet, economists and planners continue to debate the extent to which the market fails to achieve broader social goals, how far regulation can offset for that failure, and even whether regulation results in land market outcomes being even farther from the socially desired outcome than would be the case without any regulation. To examine this debate and the underlying issues, more than 30 economists and planners met at the Lincoln Institute in July 2002 to encourage new policy-relevant analysis on land markets and their regulation, and to foster more fruitful communication between the disciplines.

At the center of the substantive debate was the basic question of regulation within a market economy and the unintended consequences that can result. The discussions touched upon many themes including gentrification, the use of public resources for private consumption, distributional issues, urban form and its regulation. If perspectives regarding market regulation differed between the two disciplines, so too did views regarding the strengths and limitations of the analytic tools that academics from different disciplines bring to such thorny problems. Among the challenges are the basic questions of how to define the problem, how to measure the current conditions in light of limited data, and how to interpret findings. Throughout the conference, the differences in the perspectives, assumptions, tools and references between planners and economists were ever present, in particular with regard to the role of politics in planning and policy making.

Unintended Consequences of Land Market Regulations

Despite their differences, concern for land markets and their centrality to social, political and economic life was the common focus of both economists and planners at the conference. They agreed that land markets are about far more than land. These markets have an important role in delivering life experiences and conditioning the welfare of the majority of people in developed and developing countries alike who live and work in cities. In addition, their regulation has both direct and indirect economic effects that extend into many areas of economic life and public policy. For example, the urban poor are likely to have worse schools and to experience higher levels of neighborhood crime because land markets capitalize the values of neighborhood amenities, such as better school quality and lower crime, thereby pricing poorer households into less desirable neighborhoods.

This power of land markets to reflect and capitalize factors that affect a household’s welfare was revealed in a study of impact fees levied on new development in Florida. Ihlanfeldt and Shaughnessy found that impact fees appear to be fully capitalized into house prices for owners of new and existing houses by redistributing the costs of new infrastructure provision from existing taxpayers to a reduced value of development land. In fast-growing Miami the cost of impact fees was borne by developers, yet offset by the increases they received in higher prices for new housing, “while buyers of new homes are compensated for a higher price by the property tax savings they experience. In contrast to the neutral effects that fees have on developers, landowners, and purchasers of new housing, impact fees provide existing homeowners a capital gain” (Ihlanfeldt and Shaughnessy, 26).

One complement to their story of Florida’s impact fees was illustrated in several other papers concerned with the unintended outcomes of regulation. British participants reported that Britain’s containment policy has generated higher densities within urbanized areas, but cities leapfrog out across their Greenbelts (or growth boundaries) to smaller satellite settlements; the consequence is that development becomes less contiguous and travel times increase. Villages become high-density suburbs surrounded by a sea of wheat: London in functional terms extends to cover most of southeastern England.

In a U.S. example based on an econometric simulation, Elena Irwin and Nancy Bockstael found that a clustering policy intended to preserve open space could instead backfire. Using Maryland data, they simulated the effects of a policy that was intended to preserve rural open space and found that it would instead accelerate development if “small to moderate amounts of open space are required to be preserved (specifically, 20 acres or less) and would slow the timing of development if larger amounts of open space are required to be preserved” (Irwin and Bockstael, 26). Their simulation results yield an interpretation that is highly nuanced and requires careful thought. That is, under certain conditions the cluster policy can backfire, while under other specific conditions the policy can yield an intended policy outcome.

These hypothetical clusters in Maryland may be echos of a real situation that Jean Cavailhès and his colleagues observed in the French countryside, where some urban dwellers moved to farm regions to create a mixed-use area that is neither entirely urban nor entirely rural. These former urbanites appear to value their proximity to a functioning rural landscape in exchange for longer commutes and (surprisingly) smaller residential lots. The authors hypothesize that these peri-urban dwellers benefit in different ways from living among the farmers.

In another example of the unintended consequences of regulations, Donald Shoup analyzed curbside parking. Many U.S. municipalities require developers to provide minimal parking per square foot of new commercial or, in some communities, residential space. The requirement for off-street parking, coupled with a systematic underpricing of curbside parking, has a double impact, according to Shoup. It imposes a substantial tax on affected developments (equivalent to up to 88 percent of construction costs), increases land taking, and means that public revenues annually lost an amount equal to the median property tax.

In these cases of unintended consequences of policy or regulatory interventions in the market, the authors argued for more careful design of both policies and regulations so state and local governments could reasonably achieve their policy goals. Despite the fact that the conference debate tended to pit regulation against the market, there was probably a tendency—if not full-fledged consensus—to favor market incentives and disincentives to achieve policy goals, rather than to rely strictly, or even largely, on regulation. Roger Bolton’s comments on Shoup’s paper cogently reflected this viewpoint. He said that Shoup’s work was valuable because it urges us to pay attention to a whole package of “important and related phenomena: inefficient pricing of an important good, curb parking; inefficient regulation of another good, privately owned off-street parking; and missed opportunities for local government revenue.”

Data and Measurement Challenges

Growth management and urban form were referenced extensively throughout the conference. The paper presented by Henry Overman, and written with three colleagues (Burchfield et al.) provided useful grounding to that conversation. They attempted to measure the extent of sprawl for the entire continental U.S. Using remote sensing data they calculated and mapped urban development and the change in urban land cover between 1976 and 1992. They defined sprawl as either the extension of the urban area, or leapfrog development, or lower-density development beyond the urban fringe. They concluded that only 1.9 percent of the continental U.S. was in urban use and only 0.58 percent had been taken for urban development in the 16-year period covered by the study. Furthermore, during this period, urban densities were mostly on the increase.

This study found development to be a feature of the “nearby urban landscape,” whether that was defined as close to existing development, or near highways or the coasts, and thus was perceived as encroaching on where people lived or traveled. The authors use this last observation to reconcile the apparent contradiction between their finding that less than 2 percent of the continental U.S. has been developed and the fact that containing and managing sprawl is at the center of policy agendas in many states and regions across the U.S. While relatively little land might have been consumed by new development in aggregate during the study period, many people see and experience this development on a daily basis and perceive it to represent significant change, often the kind of change they do not like.

The conference discussion touched upon some of the data questions raised by this work. The paper’s discussant, John Landis, noted some challenges he has faced in working with these and similar data to measure growth patterns in California. The estimates by Burchfield et al. are extremely low, possibly for technical reasons, according to Landis. Among the reasons is the difficulty in interpreting satellite images and the different outcomes that can occur when different thresholds are used for counting density, for example. That is, an area can be classified as more or less dense depending on what threshold the analysts establishes. “Ground-truthing” is required to remove some of the arbitrariness from the analysis, but this is an enormously costly undertaking.

Policy analysts are always faced with data limitations. Sometimes the problem is missing data, while other times it is data with questionable reliability. Yet, all too often researchers spend very little time paying attention to how serious that deficiency is for the policy problem at hand. When the available data is a very long time series with frequent intervals that relies on a well-structured and well-understood data collection method, and where few transformations occur between data collection and data use, most researchers and policy analysts would feel extremely comfortable interpolating one or two or even a handful of missing data points. Econometricians relying on data collected at regular intervals from government surveys frequently face this situation and are quite adept at filling in such “holes in the data.” In the world of limited data, that might be considered the best-case scenario.

At the other extreme we might have data that are collected using relatively new methods and that require significant transformation between collection and use. Data reliability likely decreases under these circumstances. Given the imperfect world in which we live, the answer is probably not to insist on using only the “best data.” However, researchers and policy analysts do have the obligation to use care in interpreting results based on weak data and to convey that weakness to their audience.

Another side of the limited data problem is the translation from concept to measure, and it explains why the conference participants spent so much time discussing “What is sprawl?” For researchers this question becomes “How does one define sprawl in such a way that one can measure it?” Burchfield et al. define sprawl as leapfrog or discontiguous urban development. Landis argues for “a more multi-faceted definition of sprawl, one that also incorporates issues of density, land use mix, and built-form homogeneity.”

Definitions are not trivial in policy analysis. If we cannot define the problem or the outcome, and we cannot measure it, how can we know if it is getting better or worse, and if our policies are having an impact? On the other hand, a very precise definition of a different but perhaps related concept may lead to unnecessary intervention. The new policy may improve the score on the measure but have little or no effect on the problem. For a variety of reasons (perhaps in part the customs and cultures within different disciplines) the economists at the conference tended to favor concepts that are simple and for which the data exist. On the other hand, the planners tended to favor concepts that are messy. In the end, one is left with weaknesses on both sides. The uni-dimensional definition, and therefore the uni-dimensional measure, may provide many of the desirable properties that allow statistical analyses. Multi-dimensional concepts are difficult to translate into measures. Which is better for policy making?

The Political Nature of Land Policy

Planning as a political activity was emphasized by several authors, notably Chris Riley (discussant of papers by Edwin Mills and Alan Evans), to emphasize the importance for economists to recognize this role and the constraints it imposes on significant change (particularly given the capacity of land markets to capitalize into asset values the amenities generated by planning policies themselves). Richard Feiock added there was also evidence that the forms of planning policies that communities selected (both the severity of such policies and the degree to which they relied on regulation in contrast to market instruments) could be largely accounted for by the political structure and socioeconomic and ethnic composition of those communities.

Participants reacted differently to the political nature of land policy and planning. For some this was problematic: it meant that the market was not being allowed to work. For others, it meant that the political process in a democracy was being allowed to work: the people had spoken and the policy reflected the expressed will of the body politic.

Reflections on Debate

The differences between economists and planners will continue, and differences among practitioners in different countries and even different parts of the same country (notably the large United States) can either stimulate or thwart future debates over the study of land market policies and implementation. Perhaps, though, the word debate itself thwarts our efforts. In debates, the debaters rarely change their minds. They enter the debate with their point of view firmly fixed and do not get “points” for admitting that their debating opponent taught them something or that they have consequently changed their own mind. However, one purpose of a professional conference is, indeed, for thoughtful people to consider their own assumptions and to be informed and changed by the points of view of others. In the future, perhaps debates will be supplanted with reflective conversation.

Paul Cheshire is professor of economic geography at the London School of Economics, England; Rosalind Greenstein is senior fellow and cochair of the Department of Planning and Development at the Lincoln Institute; and Stephen C. Sheppard is professor in the Department of Economics at Williams College, Massachusetts. They jointly organized the Lincoln Institute conference, “Analysis of Urban Land Markets and the Impact of Land Market Regulation,” on which this article is based.

Conference Papers

The conference participants whose papers are cited in this article are noted below. All conference papers and discussants’ comments are posted on the Lincoln Institute website (www.lincolninst.edu) where they can be downloaded for free

Burchfield, Marcy, Henry Overman, Diego Puga and Matthew A. Turner. “Sprawl?”

Cavailhès, Jean, Dominique Peeters, Evangelos Sékeris, and Jacques-François Thisse. “The Periurban City.”

Feiock, Richard E. and Antonio Taveras. “County Government Institutions and Local Land Use Regulation.”

Ihlanfeldt, Keith R. and Timothy Shaughnessy. “An Empirical Investigation of the Effects of Impact Fees on Housing and Land Markets.”

Irwin, Elena G. and Bockstael, Nancy E. “Urban Sprawl as a Spatial Economic Process.”

Shoup, Donald. “Curb Parking: The Ideal Source of Public Revenue.”