Barrie Needham

A Theory of Land Prices when Land is Supplied Publicly: The Case of the Netherlands

Most attempts to explain land prices assume free competition between suppliers and demanders of land. If there are constraints on this competition (e.g. land-use planning) this is added as a modification to the theory. When, however, the supply of building land is in the hands of public agencies, which determine the volume and price of supply specified by land use and location, a different theoretical approach is needed. In this situation, certain economic principles apply which determine the maximum and minimum prices at which land will be bought for development and at which serviced building land will be supplied for development. However, both the limits of this range and the actual land prices within it will depend on political choices made by the public agencies. In the Netherlands, municipalities dominate the supply of land for development and redevelopment. Information about the way Dutch municipalities make the political choices and about the actual land prices there, suggests they make the political choices in a consistent way: they see themselves as suppliers of a public utility, namely building land. They try to supply so that there is never any scarcity, so that quality is high, so that prices no more than cover costs. The resulting prices might not be low, but they represent good value for money, because no-one reaps development gains directly. These are low because disposal prices are lower than could be realised, or development gains are absorbed in providing either a better quality of land servicing or more land for social uses.

Understanding how land is exchanged: co-ordination mechanisms and transaction costs

This paper seeks to increase our understanding of how land is exchanged between suppliers and demanders. Most current land-price theories, and the land-use models which are derived from them, assume that co-ordination between suppliers and demanders is achieved through the price mechanism. There are, however, other possible co-ordination mechanisms, including imposed rules and mutual trust. In order to take account of these, the effect of institutions has to be included in the theories. Transaction cost economics, as one strand of institutional economics, seeks to explain which co-ordination mechanism is chosen in practice. In this paper, the application of these ideas is illustrated with findings from a detailed survey of how Dutch housing associations acquire land. It appears that these housing associations choose to acquire land through the mechanism of mutual trust when there is a network in place which they can use, and to acquire through the market when that mechanism is not available. This application shows how the theoretical ideas can be operationalised and tested in practice. If this were done more widely, the assumption that price is the main co-ordination mechanism could be tested critically. The outcome would be important not only for land-price theory, but also for land-use policy.

Institutional Economics and Policies for Changing Land Markets: The Case of Industrial Estates in the Netherlands

Public policies for land use include many rules and regulations. Changing those policies usually means changing rules. Institutional economics studies the effects of rules on economic behaviour and how of those rules change under economic forces. Therefore, economic theories of institutional change can be applied when designing new policies for land markets. This theoretical framework is applied to the policy followed in the Netherlands for industrial estates. This policy has been stable for approximately 60 years and shows little signs of change, even though some of its effects are not what the policy makers want. That continuity in the face of policy contradictions is explained here by economic theories of institutional change. They are applied here also to find practicable ways of changing the policy for industrial estates.

Land taxation, development charges, and the effects on land-use

If land taxation is to be used as an instrument of land-use planning, then it is the intention that the taxation affect land use. If land is taxed so as to raise income for the public purse, or if charges are levied on development to help finance the associated external works, then it is usually the intention that the tax has no, or only a small, effect on land use. The size of these effects can be estimated if the price elasticities of demand for, and supply of, land are known. This paper sets out the theory necessary for making these estimations, and applies it to some topical issues in the Netherlands. The estimated price elasticities are low. As a result, it is predicted that the effects on land use of some taxes which have been proposed (to reduce the use of land for house building, and to stimulate the use of contaminated land and brownfield sites) would be small.

The Effects of Land Policy: Quantity as well as Quality is Important

Most studies of land policy, in the abstract and when applied to a country and to comparisons between countries, use a theoretical framework which is derived, ultimately, from Ricardos land price theory. This is used to predict the effects and the incidence of the costs and benefits which result from applying land policy instruments. This article begins by comparing land policy in Israel and the Netherlands in that way. Both countries have a highly sophisticated and integrated set of land policy instruments. However, some very important differences between the effects of applying those instruments in the two countries cannot be explained within that framework. In particular, in the Netherlands, the development value of land is low and development gains small-in stark contrast with Israel. A supplementary framework is needed, and this is given by the stock adjustment model applied to housing. With this, the difference between the two countries can be explained as being the result of differences in the way the instruments are applied to influence the amount of housing supplied. The Ricardian theory and the stock adjustment model can be combined into one framework that relates land policy to housing production. The key variable in this relationship is the type of land development process that dominates in a country. Whether this process is carried out by a private or a public body can affect the volume of production, and hence the price, of housing. This adds a new element to the discussion about the relationships between planning, land supply and house prices.

Discourses of town and country

There has arisen a great variety in the way we think about the relationship between town and country and in how those ideas are put into practical policy. The old certainties of the isolated town in a country setting have disappeared. By applying a discourse perspective we can understand and explain this variety better: different discourses can be identified within which people think about and act upon the relationship between town and country. An analysis in terms of discourses has certain advantages, apart from being a useful interpretive framework. For example, it admits the creative potential of ideas better than does an analysis in terms of power and interests, and it links theory and policy practice better than does an analysis in terms of paradigms. Finally, an analysis in terms of discourses suggests a way of generating new ideas for the theory about and the policy practice for the town–country relationship. Innovative ideas are likely to be found where two or more discourses meet and challenge each other. This is illustrated by reference to a large-scale programme which has been prepared for fundamental research into the relationship between town and country and new ideas for strategic policy.

Performance studies in spatial planning: the state of the art

Reviewing the state of the art in performance studies indicates that the performance approach offers a fruitful and promising way to deal with questions of the functioning and evaluation of strategic policymaking. Nevertheless the papers in this issue also present us with a host of new questions that need further research. These questions are theoretical, empirical, and methodological in nature. Answering them will no doubt broaden the scope and will link performance studies with emerging issues in the social, policy, and management sciences that deal with questions of planning and effectiveness in complex interorganisational settings.

A Neo-Classical Supply-Based Approach to Land Prices

Current interest in land-price theory is dominated by attempts to explain the structure of land prices and land uses in urban areas. Those theories, however, do not enable certain important political issues to be elucidated, in particular the relationship between produce price and land price. A different approach is therefore suggested, which considers the supply of land to consist of a supply of stocks of land differentiated by fertility, location, etc., the production function for an industry being different for each type of land used. By using the conventional tools of neo-classical analysis, the relationships between land price, product price, and the intensity of land use are derived, also the effect on land and product prices of competition for land between different industries.

Spatial Planning as a Design Discipline: A Paradigm for Western Europe?

There is an implicit paradigm in the theory of spatial planning, which we call “spatial planning as a design discipline”. It is implicit in much of planning theory, and the exposition here is in many respects an ordering of ideas from planning theory which have been in circulation for many years. I will make them explicit and relate them to each other in order to lay bare the underlying assumptions, to help planning education, and to improve the relationship between theory and practice. Such an ordering of existing ideas inevitably looks backwards, so I will also investigate how the paradigm presented here relates to some recent innovations in planning theory. Because many of the ideas have been in good currency for a long time, it is probable that they have had a strong influence on planning practice in much of Western Europe: there is not just a paradigm shared by academics but also a discourse shared by academics and practitioners.

Institutions in Theories of Land Markets: Illustrated by the Dutch Market for Agricultural Land

Theories of land markets should be intellectually sound and should be able to explain and predict market outcomes, such as price and volume of transactions, changes in these and locations of different land uses. Theories based on neo-classical economics, which largely ignore the role of institutions, are not intellectually sound because it is known that markets cannot work without institutions. Nor do these theories predict outcomes satisfactorily. Moreover, they assume market mechanisms and do not investigate them critically. This paper explores how institutions may be taken into account in theories of land markets and whether that leads to better theories both of market outcomes and of market processes. New institutional economics provides the tools to investigate how the interactions between market actors are influenced by institutions. And the ‘old’ institutional economics emphasises how institutions influence the motivations and preferences of those actors. The conclusion is that there cannot be a general theory of land markets, only theories with a limited applicability and scope. Such theories can be used to explain the effects of small changes and to predict the effects of marginal changes in institutions. In that latter use, these theories can be used for designing land policy. How institutions can be incorporated into theory is illustrated by analysing the Dutch market for agricultural land. This shows how institutions affect the outcomes in that market and the consequences for the transformation of land from agriculture to urban use.