Report

Land Markets, Government Interventions, and Housing Affordability

Alain Bertaud

Introduction

Urban population growth and economic growth require cities to expand into the agricultural land on their periphery. How much land is required for this extension? How much planning and direct intervention by the government are needed, who should pay for extending services, and how should the costs be recovered? And how can we ensure that every participant in the urban economy has access to urban land?

Although these questions are not new and have probably been asked since the creation of the first cities, we are still struggling to find satisfactory answers. The solutions found for the problems posed by city expansion vary from city to city, but nowhere has a consensus appeared on what constitutes the best practices.

Failure to provide enough land for urban expansion results in high housing prices, exacerbates the creation of high-density slums, and generally lowers urban productivity. Conversely, a number of critics argue that cities are expanding too rapidly into valuable agricultural areas and are using land inefficiently.

The proper role of government in urban land development is often difficult to establish. In other sectors of the economy, the government’s role is mostly limited to that of a regulator. However, in matters of land development, the government often takes a much more active role as a de facto developer because many public goods and the primary infrastructure network cannot easily be built privately. Even in strongly established and successful market economies, like South Korea, Japan, and Singapore, the direct intervention of the state in land development contrasts with its laissez-faire approach in other sectors of the economy. In Asia, the contrast in the approaches used in the cities of China and India illustrates the dilemma of these two opposite views: too little land areas developed in the case of India, and too much and the wrong kind in China, according to some critics.

The way urban land is developed in each country is intimately linked to its culture and history. Even if a country’s way of developing urban land was found to be “optimum,” assuming that this optimum could be defined, it is unlikely that the method could be transferred to other countries because of cultural incompatibility and different historical circumstances.

What is required, therefore, is not to identify an “optimum model” of land development to be copied but to develop for each city (1) an analytical method to identify the shortcomings of current land delivery mechanisms, (2) a set of land development objectives (equity, affordability, transportation efficiency, etc.), and (3) a reform path to modify the existing land delivery system to meet the development objectives.

The methodology proposed looking at the land delivery system from two angles: (1) the consumption of land by income groups and (2) the spatial distribution of land consumption. These two aspects, the distributive and the spatial, should never be separated. Too many governments try to solve the problem of land distribution by ignoring the spatial dimension. Increasing the land consumption of poor people by developing cheap land in faraway suburbs is not an acceptable trade-off.

This report is divided into five sections. The first section provides a brief historical perspective on the evolution of land and housing policy from the building technology focus of the 1960s to the current emphasis on land supply reforms. It points out the gap between the trends in the land economics literature and actual policies as implemented by governments. The next section proposes an analytical framework for analyzing the land delivery system from a distribution and spatial point of view and compares land consumption between countries and within cities. The third section analyzes the way government intervenes indirectly in the land market through regulations and infrastructure investments. Often apparently innocuous regulations tend to force an increase in land consumption and at the same time restrict land supply. Transportation infrastructure is often designed more to alleviate traffic than to open new land for development. The fourth section analyzes the current various land delivery systems in India, South Korea, China, and Thailand, within the framework developed in the first two sections. The last section proposes an agenda for action; first, by proposing a methodology for assessing how the current delivery system in a given city meets the different objectives of equity and transportation efficiency; and second, by establishing a framework for future research.

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