Share Constraining the growth of cities just makes them unaffordable

Constraining the growth of cities just makes them unaffordable Most urban planners didn’t get the memo about central planning's miserable record

Most urban planners didn’t get the memo about central planning's miserable record Efforts to stop gentrification cause the problem they’re trying to solve

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” – Friedrich Hayek

Alain Bertaud is a rarity – an urban planner aware of his professions’ limitations. In Order Without Design, he uses insights from urban economics alongside his own professional experience (working in 40 cities across the globe over five decades) to explain why attempts to substitute price signals for rational planning consistently fail to create ‘resilient’ and ‘livable’ cities.

The great “Markets vs. Socialism” debate of the 20th century was a whitewash. Self-described socialist radicals look to Sweden under Palme, not China under Mao, for inspiration. To highlight the intellectual triumph of markets, Bertaud quotes the Central Committee of the Chinese Communist Party: “The basic economic system should evolve on the decisive role of markets in resource allocation.”

Unfortunately most urban planners didn’t get the memo. In her government-commissioned Review of Housing Supply, Dame Kate Barker remarked, “One of the most striking features of the local planning process is the lack of any reference to price signals.”

Urban planners tend to distrust markets with their “messy and unpredictable outcomes”. The issue is that they associate the unplanned or undesigned with randomness and disorder. In the place of markets, planners rely on “rational” assessments of human needs.

But human desires are too diverse and too place and time-specific to be satisfied by a planners’ “rational” design. Reading Order Without Design I came away with a renewed appreciation of the price system. Market prices signal when, where, and what to build. They allow individuals to make trade-offs between density, apartment size, cost, access to jobs, length of commute, and proximity to green space and light.

By ignoring land prices, planners have tried to restrict the expansion of major cities, causing massive economic harm. There is an assumption by planners that large cities grow at the expense of smaller towns and create regional imbalances. This approach is mistaken because it fails to understand why people move to cities in the first place.

As Bertaud put it in a recent interview: “Sometimes when I read the papers of my fellow urban planners, I get the sense that they think cities are Disneyland or Club Med. Cities are labour markets. People go to cities to find a good job.”

It’s natural that workers will move to larger labour markets. They have a number of advantages. As Adam Smith observed, the division of labour is limited by the extent of the market. In large markets, workers can specialise to a greater degree and consequently earn more. Cities also aid experimentation, as workers move from job to job they learn about the types of work they’re best suited to. When sectors such as finance or tech cluster together, knowledge spills over and productivity improvements spread rapidly.

Urban planners, Bertaud excluded, tend to ignore this aspect of cities believing instead that jobs can be spread out. This view is exemplified by a tweet from the Campaign to Protect Rural England’s Head of Planning Matt Thomson: “[M]illions suffer because short-sighted businesses create jobs in places where people can’t afford to live”.

Understanding why people choose to live and work in cities has important policy implications.

It suggests mobility within, not between cities should be a key concern. Instead of looking at a city’s population, we should think about the number of jobs a worker can reach within an hour at peak time. Applying a similar approach, ODI Leeds head of data Tom Forth found that due to congestion Birmingham is a much smaller city than its raw population would suggest. He finds that if bus times were as reliable at peak times as they were at off-peak times then Birmingham’s effective population would be 0.4m higher. If the link between agglomeration and productivity holds, then the city’s GDP per capita would be 7 per cent higher.

Bertaud cites research showing that boosting commuting speeds by 10 per cent increases the size of a city’s labour market by 15-18 per cent, and a 10 per cent increase in the number of jobs accessible per worker is associated with 2.4 per cent higher productivity. If policymakers want to boost wages, eliminating subsidies for parking and implementing real congestion pricing wouldn’t be a bad place to start.

Flawed attempts to constrain the growth of successful cities such as green belts and height limits have made them increasingly unaffordable, pricing workers out of better paying jobs. Bertaud argues that planners should be held responsible when their policies lead to high house price/income ratios.

On the issue of affordability, Bertaud challenges approaches popular with planners. Efforts to stop gentrification by restricting the construction of so-called “luxury flats” cause the problem they’re trying to solve. Housing supply becomes trickle-up as the wealthy are forced to “invade” the housing stock of poor.

Affordable housing requirements, or “inclusionary zoning” to use the planners lingo, come in for attack too. As few developments can generate the necessary cross-subsidies, they end up restricting development broadly while providing massive subsidies to a lucky few. Council housing fares little better. It means leaving the provision of housing to the planners who caused the initial shortage by ignoring market signals.

Bertaud’s preferred solution is to allow markets to work by removing the supply constraints imposed by the planning system. Green belts, height limits, and density restrictions should be eliminated or relaxed significantly. Demand-side subsidies should then step in to top up incomes to enable the poor to consume an adequate standard of housing.

Arguably, the biggest weakness of Order Without Design is its limited engagement with politics. Bertaud sets out a clear picture of the way policy ought to be, but he doesn’t offer a clear path of how to get there. Perhaps this is an unfair criticism. Bertaud doesn’t seem to be trying to convince politicians or the general public. His aim is to persuade planners to work with economists and to accept a more modest role. Instead of drafting grand master plans, Bertaud merely asks planners to be ‘nonvisionary, but competent’.

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Sam Dumitriu is Research Director at The Entrepreneurs Network.

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