Sunday, 14 December 2014

The Invisible Hand, Car Parks, Town Planning and Urban Sprawl

Four related topics which I will condense down to one post

1. The Invisible Hand

Adam Smith coined the phrase The Invisible Hand to explain that markets do not need government intervention and control, if you leave people to get on with things, then by and large, this will lead to an optimal allocation of efforts and resources.

(Clearly, this works well up to a certain point, but let's not worry about the various obvious exceptions to the rule).

a) But it doesn't work with land use once you have private land ownership.

At the "free market" end, where The Invisible Hand works well, let's imagine a public beach which people can use for free.

Some areas are better than others:
- if the tide is coming in, you want to be further up, if the tide is going out, you want to be further down;
- you want to be not too far from the beach shop, the car park, the public toilets and shower block, but not too near either;
- some areas nearer the cliff or the sea wall are better protected from the wind;
- people might prefer sunnier or shadier areas;
- people like having a bit of space round their little 'area' so they prefer the areas with fewest other people.

So the first to arrive will choose the best mix, and the next to arrive will choose the second best mix, and so on, all taking up much the same area for towels, windbreaks etc. If it's a nice enough day and the beach is long enough, people will start making a trade off between 'facilities' and 'space', so they might prefer being wedged in between some early arrivers at the shop/car park end to having more space several minutes walk away which will be under water in a couple of hours.

If you leave people to themselves, you'll end up with the optimal allocation; lots of people fairly close together in the best bits and very few people scattered far apart on the worst bits. As soon as one group leaves, others will spread out a bit to use the space.

At the end of the afternoon, everybody packs up and goes home, and the next time the weather is nice at the weekend, the process starts again.

b) Now, what happens if that public beach is parcelled up into equal sized squares of a few yards each, from the cliff right down to the low-tide mark and one is given or sold to each local household. Let's assume that occupation/trespassing is strictly enforced and that wardens go round checking that nobody is using somebody else's patch…?

Whatever happens, the allocation would be nowhere near as efficient as with the true 'free market' example a).

2. Car parks and retail

Turning to my favourite way of illustrating this in real life - car parks and retail.

a) When a developer acquires a very large area to build his retail park/shopping centre, he will devote about half the space to car parks. That's just the way things are. He knows that his tenants will be able to sell more stuff, employ more people and pay higher rents than if he has just shops and no parking spaces. And people like choice, so you'd rather go to a retail park/shopping centre with hundreds of shops than one with dozens of shops etc.

b) At the other end of the scale are proper 'high streets', where people go when they don't have to carry lots of stuff home. So 'high streets' are ideal for pubs and restaurants; doctors, dentists and estate agents; corner shops for a pint of milk or a packet of fags. Ideally you build up a few storeys and have shops/pubs at ground level, doctors and dentists on the first floor and flats above that.

But in popular belief, 'high streets' are where people are supposed to do all their shopping, including occasional stuff like furniture or a few fridge. It's nonsense, but let's run with it.

So let's a take somewhere in the middle, if there are dozens of small shops and very few parking spaces, they'll be struggling to sell much in the way of physical goods. But we know from our heroic developer in 2 a) that if we were starting from scratch, half the available land would be devoted to car parking spaces. So logic says, the best thing all the little shopkeeperes/landowners could do is knock down all their little shops and start again; even if they 'lose' half the space to the car park, they will still be able to sell more stuff overall from what's left.

Which doesn't happen. Because the incentives are hopelessly misaligned. Each individual shopkeeper/landowner wants to maximmise his sales so he leaves his shop standing. If all of them collectively wanted to maximise their sales they'd knock it all down and start again. Also known as first mover disdvantage. The Invisiable Hand (where there is always a first mover advantage) does not make an appearance, unless the Very Visible Hand of the local council - in cahoots with a well financed developer - does compulsory purchase orders and railroads it all through etc.

3. Town planning

Bearing all this in mind, it baffles me how we ever end up with existing town centres.

Our starting point is a collection of mud huts and wooden cottages thousands of years ago. New arrivals build round these in concentric circles, but the land is divided up into thousands of small plots, each jealously guarded by its owner.

Sooner of later, there is pressure to build a proper town centre, with a Town Hall, a train station, wider streets and a pedetrian precinct, a car park, a public park, big office clocks and a shopping centre. Even though there is a first mover disadvantage for each landowner. And somehow or other, many town centres end up like this, some more than others.

I'll leave it to you to try and piece together the historical process by which this happens, or why it happens in some places and not others. Your guess is as good as mine, to be honest. It might be cause and effect. Perhaps what we now see as 'the town centre' was originally built off-centre where larger areas of land could be acquired more easily/cheaply, and somebody took a leap of faith and built it, and then the town continued to expand round it (like an oyster developing a pearl round a grain of sand). And those towns where nobody had this vision simply stopped growing?

The same dillemma applies in spades to urban parks. No individual landowner would benefit from declaring his land to be a public park (although some Victorian philanthropists did so, bless them), unless he also owned a lot of the surrounding land and developed it for residential, knowing that he can demand a higher price for housing near the park. So in most cases the Very Visible Hand of the town council has to come along and declare something to be a public park, end of, and no back chat.

4. Urban sprawl

This is universally decried as A Bad Thing, but if you understand the issues above, it is clear that this is inherent with private landownership.

If there is one access point to a very large beach (car park, shop, toilet block etc) then people will gather round it, moving closer together in the good locations, beyond a certain distance, there won't be anybody. The 'sprawl' is self-limiting. I'm not making this up, a classic example of such a beach is Rhossili Bay on the Gower Peninsula. There's basically one access point, where the photo was taken. The far end of the beach is usually deserted, even if the first few hundred yards of it is 'full'.

So it's only because The Invisible Hand doesn't work that Urban Sprawl is an issue. If the first mile of Rossili Beach had been parcelled up as outlined in example 1 b) above, then people from elsewhere who want to visit would have to trudge a mile past the privately owned squares (many of which will be empty on any given day) to find one of the unclaimed spaces. So far fewer people would visit. Fail.

It's exactly the same with town planning, exacerbated by this flawed idea of the Hallowed Green Belt. I've done three examples with the same amount of developed i.e. useful land, I haven't drawn all the connections like roads, railways, water and sewage pipes, electrictiy and gas, but it must be clear that you want to minimise on this with A or B you need the least (surprisingly, A requires less than B, but that's a maths thing) but with C you need the most, which will devour as much land again as the actual developed areas.

A. We know that the ideal kind of town is spread out along branches (see here). Everybody gets benefit of being near the centre and near the countryside:


B. If you have a fairly strict green belt policy, you end up with a second best solution. People are nearer the centre but further from the countryside:


C. The worst of all worlds is the very strict green belt, so towns only grow to a certain size and then another New Town springs up on the other side of the green belt. We're all near the countryside but nobody is near the centre, as there isn't one. You waste all the extra money and land on trunk roads etc and you don't get the agglomeration benefits - the dark grey shaded bit in examples A and B:


5. So is there a 'solution' to all this?

There is no perfect single solution to all this, but you can ameliorate it by making it all more free-market again, which counter-intuitively can only be done by some sort of collective action:

a) Replacing other taxes with Land Value Tax, obviously. With LVT, there would be less need for Green Belt policies, sprawl would be self-limiting.

b) Having more land owned by the local council in the first place, who can take the larger view, or owned by large landowners who are paying full-whack LVT and are in it for the money and the larger view rather continuing doing what they are doing for sentimental reasons or sheer inertia.

c) Make smaller landowners (all the little retailers in dying town centres with no parking) pool all their land, so that instead of owning one shop out of a hundred, you are now a one-per cent shareholder in a company which owns a large area. Then slap the company with the higher LVT it can earn buy redeveloping as a coherent whole. The company decides by majority what it is to do, all it takes is one person to have the initiative and to offer to redevelop the whole lot, so you vacate your little unit and after a year or two you can now rent back from the company one unit to re-start your business, assuming it was a viable business to start with, and still collect your dividend of one per cent of the profits.

15 comments:

Lola said...

Thought. In my town, nearly all the small units are owned either by investment companies or smaller landords, not the shopkeeper.
Surely that makes the Mark Wadsworth Plan easier?

Lola said...

Second thought. As land is a de facto monopoly surely the 'rules of the free market' cannot apply as there is no possibility of competition.
From memory Adam Smith knew this and was an LVT'er.
And you cannot have land rationed by bureaucrats as that would descend into corrupt boondgoggles and cronyism.
So you have to have it allocated/distributed by market forces, and the only way of levelling the playing field (?pun?) is to use LVT.

Mark Wadsworth said...

L,

1. What matters, on a local level, is whether there are hundreds of plots owned by different people. it does not matter whether they are small landlords or owner-occupiers. their heads still need knocking together.

2. Land has to be rationed somehow. We can have small landowners doing this (worst outcome) or larger landowners (less bad, but still not perfect).

You only get "corrupt boondoggles and cronyism" if there is private ownership AND no LVT. Because buraucrats will quickly descend into corporatism.

Quite where the borderline is between private ownership/LVT and public ownership/rent is a finer point.

The Stigler said...

Spot on, yes.

Town/City centres are mostly like they are because there was rarely an attempt to start again with them. They were built around roads with trams and buses, and then probably, as you say, they then couldn't change because it was in private hands.

The only town centre that got it right is Milton Keynes, which was built in the 80s and had cars in mind. Rather than sticking on a massive car park, the parking is right next to the outer shops. Out of towns and supermarkets are similar, having the parking flat against the shops, reducing time.

And pedestrianisation never worked in the UK because it always missed what the French also had, which was underground parking, which put you right under the major shops.

DBC Reed said...

The St is surely right about the shape of towns being fixed by the roads, railways rivers and other transport routes going through them. (Mark's model of the beach has people coming in, stopping for a bit, then leaving and is dependent on walking once there.)Northampton is a crossroads town with a lot of railway workers' houses up the hill from the station.Places like Chessington and the sprawl along the A3 south of London resulted from trolley bus routes leading to "ribbon development" which was curtailed( by Red Terror in the terms of this site!) in the 1930's.HG Wells is very good on all this in " Anticipations", especially about spread resulting from the railway.Possibly the Green Belt was acceptable because railway commuters wanted to think they were well out of Town and did not want bus passengers in-filling.From the train on your way to a "country town", the Green Belt looks great and works for the British psyche which was heavily imprinted by the Garden City garden/suburb movement .(Totally Georgist:in the original Garden Cities you paid for the bricks and mortar up front and the land in a ground rent).
However the lay-out of Milton Keynes is a red rag to a bull! The original plan drawn up by the Bucks County architect had scattered garden city hamlets linked up by a free or cheap light railway paid for out of rents (tenants) or the rates (owner occupiers).But they went instead for a totally unsuitable American grid proposed by some American hooligan.

Lola said...

DBCR. Got any links to that early MK proposal by Bucks?

DBC Reed said...

@L Anything on Fred Pooley and Milton Keynes will give the bare bones of it.There is a very short paper called The Decision to Build Milton Keynes and a longer more academic one called Planning the Urban Future in 1960's Britain, both on Net.

Bayard said...

I was very disappointed when I discovered that Milton Keynes was not named after Milton Friedman and John Maynard Keynes.

The Stigler said...

DBC,

I'm occassionally in Northampton, but rarely go to town centre. Is it still from the old ABC down to the other end of Gold St with Drapery and Bridge St crossing?

I can't much comment on the town of Milton Keynes. I used to go there quite a lot, but only to shopping and cinema.

DBC Reed said...

The elephant in the room in the Georgist how-to-divide-up-space problem is Frank Lloyd Wright who came up with a car-based grid pattern in his Broad Acre City plan.

He was an ardent Georgist and his "Usonian" houses (prefabricated to avoid union labour which he called ruiners of good materials) stood on one acre of land each.He appeared to see Georgism as a "land for the people" proposition not a tax reform with socio-political implications.
He spent years on this scheme hoiking round the huge architectural model sometimes at his own expense, more often at the expense of his long-suffering patron Kaufman of Fallingwater fame.
A lot of people see Melvin Webber ,called the Father of Milton Keynes, as carrying on in the FLW vein.
So there appear to be two Georgist traditions: organised sprawl linked up by car or the Garden City idea of raising money for infrastructure from gound rents, in this case to provide light link-up railways.The sprawl provides much bigger gardens (Webber)the light railways more woods and open space (Fred Pooley).
Pooley also planned to use monorails which would have been so cool (in the ultra cool slightly dated way) and I am a total sucker for.
@ST Your memories of Northampton are fantastically accurate. I used to live in central Swindon
and cannot remember the name of a single one of the main streets.
The crossed roads you describe just extend out till they reach other towns.

Ben Jamin' said...

The trouble is, at the moment, our incentives are so distorted by taxes on income/capital and the capitalisation of land rents, it's very difficult for us to look outside the box and try to predict what would happen under a proper LVT.

I've got a feeling that the way we see immovable capital would be radically different.

Once you take land out of the equation, the onus will be on getting value from bricks and mortar. So, I think the residential and commercial property markets will become much more streamlined and dynamic, and more akin to what we see in other commercial enterprises.

Small BTLers/business owner occupiers, gone. Replaced by large scale property companies letting homes and offices on short leases between 5-20 years.

So, I don't think LVT will necessarily see more freehold owner occupiers, because with a functioning market, we will see rationalisation too.

Mark Wadsworth said...

DBC, the "how-to-divide-up-space problem" has an easy answer. Dense in the middle and then more and more scattered as you go out. That applies with or without LVT.

BJ, we know for a fact that there would be more owner-occupation. The last fifteen years of Home-Owner-Ism have caused a significant shift from owner-occupation to renting - LVT would do the opposite.

But I suppose it's also possible that more blocks of flats would end up being owned by one company

Which is a far better way of organising it, so people can invest in the shares in the company rather than the flats themselves.

Bayard said...

"more blocks of flats would end up being owned by one company"

This seems to be the route of choice for a bunch of leaseholders who have just jointly bought their freehold - to form a company to own the freehold of which they are all directors and shareholders.

DBC Reed said...

@mw Well that's telling you Frank Lloyd Wright and Fred Pooley: just have big densities in the middle than spread out as you go out a bit. Why didn't they think of that?
One reason might be different methods of getting about.
Some people might want to jump on one of those new-fangled train things and commute for the bearable 40 mins and live 20 miles out in the country.You could call the intervening space, I dunno , a green belt.
You keep obsessing that green belts are an imposition by the Red Terror, Bureaucrats and the Agents of Repression.In fact they stem from a wish to live more naturally which underpins Adam Smith's laissez faire.(Count the number of times the word "natural" appears on a typical page of TWoN).

Mark Wadsworth said...

B, the reasons for buying the leasehold via a mutual company are for legal simplicity, there's no economic reality behind it.

DBC, that comment is so inane it gets a new post.

Your last paragraph is straw man gibberish. You are going all Homey on us, accusing of saying things we never said and then criticising that rather than discussing what we actually DID say.

As it happens, I have no idea who is/was really behind the English version of green belts (not having been around in the first half of the 20th C.

Quite objectively it has failed. It leads to worse outcomes than the "branches" policy.