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.