Home' Trinidad and Tobago Guardian : April 9th 2015 Contents BG22 THE ECONOMIST
BUSINESS GUARDIAN www.guardian.co.tt APRIL 2015 • WEEK TWO
Buy land, Mark Twain
advised; they re not
making it any more. In
fact, land is not really
scarce: The entire pop-
ulation of America could
fit into Texas with more
than an acre for each
household to enjoy. What drives prices skyward
is a collision between rampant demand and
limited supply in the great metropolises such
as London, Mumbai and New York.
In the past 10 years real prices in Hong
Kong have risen by 150 per cent. Residential
property in Mayfair, in central London, can
go for as much as US$82,000 per square meter.
A square mile of Manhattan residential prop-
erty would cost US$16.5 billion.
Even in these great cities, the scarcity is
artificial. Regulatory limits on the height and
density of buildings constrain supply and
A recent analysis by academics at the Lon-
don School of Economics estimates that land-
use regulations in the West End of London
inflate the price of office space by about 800
per cent. In Milan and Paris the rules push
up prices by around 300 per cent. Most of
the enormous value captured by landowners
exists because it is well-nigh impossible to
build new offices to compete those profits
The costs of this misfiring property market
are huge, mainly because of their effects on
individuals. High housing prices force workers
toward cheaper but less productive places.
According to one study, employment in the
Bay Area around San Francisco would be about
five times larger than it is but for tight limits
Add up these costs in lost earnings and
unrealised human potential, and the figures
become dizzying. Lifting all the barriers to
urban growth in America could raise the coun-
try s GDP by between 6.5 per cent and 13.5
per cent, or by as much as US$2 trillion. It
is difficult to think of many other policies that
would yield anything like that.
Two long-running trends have led to this
fractured market. One is the revival of the city
as the central cog in the global economic
In the 20th century tumbling transportation
costs weakened the gravitational pull of the
city, but in the 21st century the digital rev-
olution has restored it. Knowledge-intensive
industries such as technology and finance
thrive on the clustering of workers who share
ideas and expertise. The economies and pop-
ulations of metropolises such as London, New
York and San Francisco have rebounded as a
What those cities have not regained is their
historical ability to stretch in order to accom-
modate all those who want to come. There is
a good reason for that: Unconstrained urban
growth in the late 19th century fostered crime
and disease. Hence the second trend, the pro-
liferation of green belts and rules on zoning.
In the course of the past century, land-use
rules have piled up so plentifully that getting
planning permission is harder than hailing a
cab on a wet afternoon. London has strict
rules preventing new structures blocking cer-
tain views of St. Paul s Cathedral.
Google s plans to build housing on its Moun-
tain View campus in Silicon Valley are being
resisted on the ground that residents might
keep pets, which could harm the local owl
population. Nimbyish residents of low-density
districts can exploit planning rules on every-
thing from light levels to parking spaces to
block plans for construction.
A good thing, too, many say. The roads and
rails crisscrossing big cities already creak under
the pressure of growing populations. Damp-
ening property prices hurts one of the few
routes to wealth-accumulation still available
to the middle classes. A cautious approach to
development is the surest way to preserve
public spaces and a city s heritage: Give econ-
omists their way, and they would quickly pave
over Central Park.
However well these arguments go down in
local planning meetings, they wilt on closer
scrutiny. Home ownership is not especially
Many households are priced out of more
vibrant places. It is no coincidence that the
homeownership rate in the metropolitan area
of downtrodden Detroit, at 71 per cent, is well
above the 55 per cent in booming San Francisco.
You do not need to build a forest of skyscrapers
for many more people to make their home in
big cities. San Francisco could squeeze in twice
as many and remain half as dense as Man-
Zoning codes were conceived as a way to
balance the social good of a growing, productive
city and the private costs that growth some-
times imposes. However, land-use rules have
evolved into something more pernicious: a
mechanism through which landowners are
handed both unwarranted windfalls and the
means to prevent others from exercising control
over their property.
Even small steps to restore a healthier balance
between private and public good would yield
handsome returns. Policy-makers should focus
on two things.
First, they should ensure that city-planning
decisions are made from the top down. When
decisions are made at local level, land-use
rules tend to be stricter. Individual districts
receive fewer of the benefits of a larger met-
ropolitan population, including jobs and taxes,
and more of their costs, such as blocked views
and congested streets.
Moving housing-supply decisions to city
level should mean that due weight is put on
the benefits of growth. Any restrictions on
building won by one district should be offset
by increases elsewhere, so that the city as a
whole keeps to its development budget.
Second, governments should impose higher
taxes on the value of land. In most rich coun-
tries land-value taxes account for a small share
of total revenues. Land taxes are efficient.
They are difficult to dodge: You cannot stuff
land into a bank vault in Luxembourg. Whereas
a high tax on property can discourage invest-
ment, a high tax on land creates an incentive
to develop unused sites.
Land-value taxes also can help newcomers.
New infrastructure raises the value of nearby
land, automatically feeding through into rev-
enues, which helps to pay for the improve-
Neither better zoning nor land taxes are
easy to impose. There are logistical hurdles,
such as assessing the value of land with the
property stripped out. The politics is harder
Politically tricky problems are ten a penny,
though. Few offer the people who solve them
a trillion-dollar reward.
@2015 The Economist Newspaper Ltd.
Distributed by the New York Times Syn-
Space and the city
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