The Role of Government, Urban Planners and Markets

We are going to discuss the relative role of government, of urban planners and of real estate markets in developing cities. We will look in particular at the way government action and the real estate markets interact with each other in shaping cities. In particular we are going to discuss in detail the role of government and the role of urban planners within the government in developing cities in the context of a market economy.

We are going to discuss the relative role of government, of urban planners and of real estate markets in developing cities. We will look in particular at the way government action and the real estate markets interact with each other in shaping cities. In particular we are going to discuss in detail the role of government and the role of urban planners within the government in developing cities in the context of a market economy.

And, finally, we are going to concentrate on what urban planners should know about the real estate market to do their work efficiently.  

Government and the real estate market. This is a rather difficult subject world wide because every country is going through an economic transition.

Markets are playing an increasingly important role, but sometimes the line between market and government action has not been very clear. This is not really specific to any particular country.

There are a lot of countries where the boundaries between the role of government and markets are not very well defined. But I think that in most countries, during this period of transition, defining a little more clearly the role of the market and the role of government is particularly important.  

A very common mistake consists in thinking that in a market economy; the role of government is much reduced. In my opinion, this is completely wrong. In a market economy, the role of government is as important as in a planned economy, it is just very different.

The role of government as a regulator is more important in a market economy than it is in a socialist economy.  

In a socialist economy, the government is a planner, the government is a developer, and the government is a builder. So its role as a regulator is secondary, because being at the same time a planner, a developer and a builder, it can change regulations relatively fast, depending on the circumstances.  

In a market economy, the government is first a regulator. Its role as developer is much reduced, and as a builder it has no important role.

So the focus is on regulations, but regulations are much more important in a market economy than in a socialist economy. I could compare a socialist economy to a ballet where everybody is acting according to a prearranged script; there is really no regulations for the way a ballet should be executed, but there is only a script, and everybody follows the script, and the script is under the control of the director.  

In a market economy, there is no script. It is more like a soccer match, rather than a ballet. You need rules and you need a referee, and the referee, in the case of the market, is the government.

The government is the referee, and the referee has to follow the rules. It is very important. In the absence of rules and referee there is no possible soccer match. Even if the players are very good, if there is no referee or if there are no rules, nobody can play.  

Well, markets are exactly like that. If there are no rules or if the rules are imprecise or if there is nobody to enforce the rules, markets do not work.

This is extremely important to bear in mind; that for markets to work efficiently, the government has to play an extremely important role.

When the government does not play well its regulatory role the market will not work at all.

The government in any country may not yet be playing the regulatory role that it should, and so we are going to develop that a little further in order to see in particular what should be the role of planners within government.

Defining these roles is always a little controversial and at time difficult to grasp. In many countries, unfortunately, the proper role of government and planners is not always very clear, and as a consequence it creates a lot of confusion and inefficiency in a lot of cities.  

First, let us look at the role of government. Government, first, should develop urban objectives and an urban policy. Developing an urban policy is a political task.

It is not a technical one, although the government, of course, will have to use the input of planners. It will have to use technical documents, in order to set up priority objectives, but the choice of objective and their relative priority is not a technical task; it is a political one, and it is very important that planners understand that this task is political and is done by mayors and municipal councils.

The job of urban planners is technical; they have to translate political objectives into a strategy. The goal of the strategy is to implement the municipal objectives. Planners do not select objectives.

It is the government, because it is mainly a government which is responsible in front of the people. Urban planners are accountable to the government, and the government is accountable to the people for the success of its strategy.  

What is then the specific role of urban planners? If the government set up the objective and, in a way, selects a strategy with the help of planners, then the most important role of planners is to set up the framework within which the market will work, and this framework is composed of three components.  

The first component is constituted by land-use regulations; the second one is the primary infrastructure investments; and the third one is taxation.

This is the role of the planners, to develop this framework within which the private sector will work. It is very important to bear in mind this separation of responsibilities. A master plan should always start with a clear statement of Municipal objectives, and those objectives should be set up by the government.

The objectives are political, and those objectives will change over time. It is possible that a local government will want to put a priority on creating employment, for instance, or on new housing, and that within after 5 or 10 years, the same government will shift objectives or priorities.  

Many objectives will always be there, but priorities may shift. The Municipal government will say, “Our priority is the environment”, or “our priority will be culture”.

Every time the planners will have to adjust the framework within which the market is working so that the government’s objectives will be implemented.

Do not forget that, at the end, it is mostly the market or independent players who are going to build the city, but they are going to build it within the framework which is established by government and which follows overall objectives set up by government.  

So let us now concentrate a bit more on the role of urban planners. The market framework: regulations, infrastructure investments and urban taxation would have to be developed by urban planners, and it should reflect government objectives.

And this is not easy to do, frankly. Ensuring that the set of regulations which are regulating markets are in conformity with government objectives requires an audit of existing land use regulations.

That means that planners will have to review existing regulations which were set-up in previous administrations to see if those regulations are consistent with government objectives.

Very often, regulations have a tendency to accumulate in layers, and sometimes they even contradict each other. And in many countries, you will find that there are many contradictory regulations, which end up creating a lot of inefficiency.

Land use regulation should be submitted to the six steps of urban planning that we discussed in the previous session: objective, strategy, input, output, outcome and impact.

Therefore, when a planner drafts a regulation, it is absolutely necessary to also include in the regulations its objective but also the projection of what will be its impact on the city structure. Unfortunately, this is not often done.  
Many land use regulations have what I will call “side effects”. It is a bit like medicine. You may take some medicine for a headache, and it has the side effect of giving you a pain in the shoulders, and many regulations have side effects like that.

They are intended for one purpose, but they do something else. For instance, let us say that you have a set of regulations which establish very high standards for housing.

The objective are clear, it aims at improving the housing conditions of the city. For instance, the homes have to be a certain size, rather large, and there should be arooms and bathrooms of a minimum size, et cetera.  

This is all good and well, but it could be that a side-effect of this well intentioned regulation will make housing much more expensive, and that therefore a large number of people will have no access to housing at all, and therefore they will tend to overcrowd existing housing, therefore reducing the standards of the city, rather than improving them

 This will be rather typical of a side effect of regulations. That is why a planner should be very careful about calculating side effects by taking into account the reaction of the market to the regulation.  

Planners should always look at the effect of a regulation on the market. For instance, a regulation which aims at increasing or decreasing density would have a direct effect on the price of land, and planners should be aware of that.

Regulations are not like a design. Imposing a regulated low density will reduce the price of land, but at the same time planning a city at low density will require much more land to be developed because the same number of people will require more land at low density than at high density.  

On the opposite side, a regulation which increases overall density will normally increase land prices, but it will contribute to decrease the land which is required for the development of the city.

As a consequence higher density normally results in cheaper housing, although it increases the price of land. But, higher density means requiring less land for housing. Therefore, it tends to lower the price of housing.  (To be continued…)