How much is a good city worth?

Today, I did a few things. Went to the shops for milk, registered some documents, dropped in my car for service, worked, had a meeting in the city, came home and took a walk with friends.

Let’s say my day is typical. Multiply my daily experience by several million city folk – then consider all these interactions over 50 years – the life of a city strategy.

The 60 minutes saved moving through convenient and accessible centres could be multiplied to become a collective saving of tens of thousands of years. Add to this the health benefits of having the opportunity to walk.

The 10 kilometres of travel saved having an industrial estate nearby and a reliable bus route through a local centre could be multiplied out to billions of kilometres and hundreds of thousands of tonnes of CO2 saved by a capital cities population over 50 years.

Then add the cumulative value of all the individual business transactions and social interactions, plus the savings from efficient service and infrastructure delivery to established and emerging nodes of activity.

All of these savings have a dollar value. Together, the total amount would be immense. Marcus Spiller estimated the cumulative net benefit of a plan for Melbourne at over $25 billion. In Sydney, CIE estimated the savings from different urban structures for Sydney at between $2K and $10K every time a new house is built under the metropolitan plan.

The potential net benefit of a well-conceived city strategy is so great that any planner or economist must take them seriously.

Are these benefits taken into account?
However, it’s odd that the economists at the Australian Productivity Commission and its NSW equivalent seem to forget the basic tools of their trade when reviewing the impacts and value of urban planning.

In recent publications, these economists have bluntly criticised regulation of land use and development as robbing Australians of everything from affordable housing to cheaper groceries.

Typically, these reviews have looked at segments of urban development in isolation and considered only near term impacts. This can lead to serious misjudgements about the economic value of
planning.

The essential premise of these reviews and zoning case studies is that planning regulations should be sufficiently nimble, flexible and non-prescriptive to enable each development proposal to be judged  on its merits. That is, if a project generates a net community benefit – the positives for the neighbourhood or city outweigh the negatives – it should be approved. This proposition further implies that if all successive development proposals are judged and approved on this basis, we would ultimately get a city that optimises community welfare.

This conclusion, however, is wrong. It ignores the immense welfare gain that the community can reap by sticking to plan for a desired city or neighbourhood structure rather than reacting in an ad hoc way to the merits of successive developments.

The model of reactive development regulation implicit in the Productivity Commission critiques is known as ‘effects based’ planning. It has been pursued with dogged determination in New Zealand from the mid 90s to the present day, but has not delivered the goods. Indeed, this supposedly promarket reform has generated a risk laden, transaction cost heavy system of planning that nobody is happy with. The NZ Government is now turning its attention to reinstating a ‘vision based’ model of planning in that country.

Planning is about conceiving a preferred future in terms of land use and built form, plus all the attendant infrastructures. The preferred future is not static and would be part of scenario of interrelated place outcomes. The obvious economic tool to apply in planning is cost benefit analysis what is the net gain to the community in achieving a preferred future versus an alternative, shall we say, no policy change, base case. If a preferred future promises to deliver a sufficiently large net community benefit, it is efficient to apply rules and regulations to ensure that it is achieved, subject to one proviso. The rules and regulations need to be cost effective; that is, they must apply the least restriction necessary to achieve the long term outcomes set out in the plan.

This understanding helps regulators identify where ‘red tape’ really exists and be precise in cutting it. This does not mean deregulation and treating each case on its merits. Such an approach is likely to lead to a net community ‘detriment’.

Should zoning be reformed without understanding its strategic role?
A functioning planning system is about translating goals for a place into policy that best achieves this intention. Zoning is just one of the many policy tools at the disposal of city managers to do this.

Zoning tools should only be reformed with a clear understanding of how they can best deliver the long term value of a strategic plan.

However, recent NSW and Australian Productivity Commission outputs have focused so specifically on zoning in the abstract, that they have missed the forest for the trees. They have misunderstood how zoning operates alongside other tools to achieve the strategic goals of a community. From this, they have drawn conclusions that threaten to undermine the value behind city and regional strategies.

Recent Productivity Commission papers are focussed on the way business and industrial zones are used and seek the consolidation of these zones to avoid restricting where businesses, housing and retail can locate. In fact, zones operate to create a diversity of spaces for businesses to operate productively over the long term – and not be displaced by land uses that attract a price premium in the current market.

While zoning does control how land can be used for different purposes, it does this not only to separate incompatible uses – like stopping heavy industry popping up in your local neighbourhood – but also to achieve economic strategy. Zones contribute to building agglomerations of economic activity preserving scarce inner city industrial lands, strengthening hubs of innovation in regional communities and developing a retail hierarchy that makes sure small business and services can thrive in centres.

Zoning that prevents large supermarkets and other retail from being developed throughout industrial sites are critically important to the successful functioning of our cities. The sporadic development of shops far from transport and services and in place of large industrial sites very rarely achieves city strategy and the community ultimately bears the cost. This cost is expressed in terms of travel time, congestion reduced accessibility and loss of return on the infrastructure investment. It is unfortunate that the Victorian Zoning Case Study prepared by the Australian Productivity Commission did not undertake a cost benefit analysis addressing these implications.

Other interventions promoted by the NSW Productivity Commission to enable housing in commercial cores also have the potential to undermine the productivity of the best places for concentrations of jobs in offices, retail and services in the heart of our most significant city centres. Contested claims on the availability of sufficient housing supply and its minimal impact on house prices are not an argument for undermining planning strategy and risking the immense value at stake.

Planners agree planning tools and zoning can be improved. Planners understand that business reallocation is occurring and that the planning system must ensure that the right settings for new enterprises are available. However, reform should only be targeted towards that regulation which is in excess of the rules and incentives needed to achieve a strategic plan outcome. This is an area where PIA continues to be positively engaged in partnership with Government and industry.

Conclusion
Recovery from recession will require a sustained effort from business, government and community well beyond immediate stimulus. We cannot afford to deny ourselves the immense benefits of a productive city structure and the best returns on our investments in infrastructure by undertaking zoning reform in isolation.

Planners strive to make land use, infrastructure and funding tools more effective in achieving the outcomes of strategic planning. These outcomes are carefully conceived and adopted in partnership with the community, government and industry experts. The plans are not static – and need to be reviewed to ensure their outcomes offer economic, social and environmental benefits to the future communities they will serve.

PIA will continue to look to economists and planners to collaborate on measuring how the net benefits of strategy can be maximised – and how these benefits can be achieved with the lightest
regulatory touch.

John Brockhoff, National Policy Manager, Planning Institute of Australia

Marcus Spiller, Principal and Partner, SGS Economics and Planning

Enjoy Sourceable articles? Never miss important updates. Subscribe for FREE to receive daily updates in your inbox each morning.