UBC Theses and Dissertations

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UBC Theses and Dissertations

Land development in the 1970’s Peterson, William Scott 1973

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e l LAND DEVELOPMENT IN THE 1970'3 by WILLIAM SCOTT PETERSON B. S., UNIVERSITY OP COLORADO, 1971 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE In the Department of COMMERCE AND BUSINESS ADMINISTRATION We accept t h i s t h e s i s as conforming t o the r e q u i r e d standard THE UNIVERSITY OF BRITISH COLUMBIA DECEMBER, 1973 In p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l m e n t of the requirements f o r an advanced degree at the U n i v e r s i t y , of B r i t i s h Columbia, I agree that the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r reference and study. I f u r t h e r agree that permission f o r extensive copying of t h i s t h e s i s f o r s c h o l a r l y purposes may be granted by the Head of my Department or by h i s r e p r e s e n t a t i v e s . I t i s understood that copying or p u b l i c a t i o n Of t h i s t h e s i s f o r f i n a n c i a l gain s h a l l not be allowed without my w r i t t e n permission. Department of CMM*^<^ ILteC The U n i v e r s i t y of B r i t i s h Columbia Vancouver 8 , Canada D a t e Qut~J*V j?t i ABSTRACT Land use control, and consequently the process of land development, have undergone major modifications within the last few years. Conventional land use controls,, such as zoning by-laws and subdivision regulations, have been reformed for various "observable" and "non-observable" reasons to include such devices as comprehensive zoning, planned unit developments and land use contracts. As a result, land developers have had to adjust their operational responsibilities, In this paper, we a re primarily concerned with the possible reasons for the recent shifts evident within contemporary land use legislation; and the subsequential reactions by land developers. A review of the literature concerned with contemporary land use controls and their impacts w i l l be ut i l i z e d . Tradi-tional land economic theory w i l l supplement these observations. It is hoped that this study w i l l encourage further examination of the land development environment observed in this present impirical analysis. The main objectives might hopefully be to stimulate thought, provoke discussion and encourage further work in the f i e l d . i i TABLE OF CONTENTS ABS TRACT i CHAPTER 1 Introduction 1 CHAPTER 2 Background 7 CHAPTER 3 Real Property and Land Development 14 CHAPTER 4 Land Models 20 CHAPTER 5 Conventional Land Use Controls 32 CHAPTER 6 Why Conventional Land Use Controls Changed 38 CHAPTER 7 Reformed Land Use Controls 51 CHAPTER 8 Conclusion 67 BIBLIOGRAPHY 75 APPENDIX 81 BIOGRAPHICAL INFORMATION 83; 1 Chapter 1 - Introduction It is the purpose of this paper to Illustrate the working environment of the modern land developer. In reaching a better understanding of the forces which interreact in this environment, we, as a society, may become more efficient in establishing and maintaining these particular amenities considered essential for a satisfactory quality of l i f e . It is becoming increasingly important for those individuals who assemble the land and buildings for our homes, offices and factories to know why their business activities are subject to growing government control. Land developers must be aware of the risks which inhere with control and regulation. Those who dismiss such control as being indicative of a passing phase must prepare themselves to be discouraged. 1.1 Characteristics of Land The economic characteristics of land are in part determined by i t s physical characteristics. Certainly the physical attributes of any commodity are faotors of great weight in determining the processes of production or develop-ment, the distributional channels, and the nature of its use or consumption. The commodity traded when dealing with land is space and area. Land primarily derives its value from use, and the shape of the space is important in determining the 2 uses to which i t can be put. Space cannot be depleted, therefore land is indestructible, while i t s value may be affected by changing external conditions. The immobility of land requires that i t must be used where i t is found and cannot be moved to a more favorable market. Land lies helplessly vulnerable to external social and economic forces which determine its use and influence i t s value. Since no two building lots are oriented identically with respect to any other lot or to a l l lots (geologically or geometrically) land!a heterogeneity often weighs heavily in the determination of value. This heterogeneity may be further illustrated by the scattered ownership patterns existing within the land market. Finally, the fixed nature of servicing and the other components of the urban infrastructure may possibly hinder future changes in land use. For this reason, adaptability to new uses may be limited. 1 .2 Nature of Land Market Adam Smith, whose Wealth of Nations (1776) is a germinal book of modern economics or p o l i t i c a l economy, was t h r i l l e d by the recognition of an order in the economic system. Smith proclaimed the principle of the "Invisible Hand"; every individual, in pursuing only his own s e l f i s h good, was led, as i f by an invisible hand, to achieve the best good for a l l . Interference with free competition by 3 government was almost certain to be injurious. While Smith did recognize some of the r e a l i s t i c limitations on this theory, i t was not until later that economists discovered this truth: The virtues claimed for free enterprise are f u l l y realized only when complete checks and balances of "perfect competition" are present. Perfect competition in terms of the land market exists only in the case where no farmer, businessman, or laborer Is a big enough part of the total market to have any personal influence on market price. Clearly this has not been the case. Because of land's unique physical qualities, namely its Immobility, durability and limited supply, It has traditionally been subject to non-market constraints and other externalities. 1.3 Controls on Land The process of creating land values has been tradi-tionally constrained by such techniques as aoning by-laws and subdivision regulations. Hence, with such constraints, the land market ?>has been to varying degrees imperfect (where a farmer, businessman or laborer is a big enough part of the whole land market to exert influences upon the ultimate market price). When talking about a market's Imperfection, i t is imperative t© review some basic p r i n c i -ples of prices. In an exchange economy prices are established by competitive exchange. These prices perform the social 4 function of product and resource allocation. And they do so without the conscious personal intent of any one firm or household, any group of firms or households, or any central social agency. Within the limits set by law and custom, consumers spend their income on the things they want. Naturally, they w i l l offer higher prices for the goods and services they desire greatly and lower prices for those they desire less. Owners of resource services are free to s e l l their services to the firm of their choie©. They are Inclined to s e l l where the price offered is most attractive, given certain other consider-ations. Entrepreneurs devote their efforts to producing things that bring the highest return. The consequent interaction of households and firms determine market prices. Considered from this point of view, prices serve two major purposes in an exchange economy: (l) They tramsmit i n -formation, and (2) they provide incentives for economic units to be guided by this information. The price mechanism imparts information and provides incentives to reallocate resources according to the wants of consumers. 1.4 New Land Controls The land developer today must consider new land controls (such as planned unit developments, land use contracts and comprehensive zoning) when he assembles a development project. These devises have been forced upon an already Imperfect land market. There are countless 5 reasons for the advent of such "reformed" land use controls. Many of these reasons w i l l be discussed in subsequent sections; but regardless of the reasons, land control in North America has passed a significant milestone with it s new reforms. With such a shift towards more interference and control in the land development process, the land market has become more Imperfect. The new land control legislation increases land developer's costs in two ways. Fi r s t , the developer may be required to provide certain public services which were not required under the conventional controls of zoning by-laws and subdivision regulations. These public services may be both on-site and off - s i t e , depending upon the part i -cular arrangement made between the land developer and local planning authorities. The second type of cost may be re-ferred to as the "costs of planning". Delays inherent in a long approval proeess w i l l increase the costs of development because of the time factor of capital cost. These costs of planning are borne by the land developer in the short run, and are eventually passed-off Into the ultimate price to the consumer. Reformed land use controls have substantially i n -creased the developer's responsibilities and capital requirements, and thereby Increased the costs of land develop-ment. Some land developers may be forced to exit the land market because of their in a b i l i t y to accumulate sufficient capital to "carry" these new costs (capital Improvement of 6 public services and the costs of planning) throughout the development cycle. These developers who remain i n the market may be segmented by their operational philosophies. Some w i l l fight the moves of government for more land eontrol, while others w i l l learn how to operate under the new constraints. It is foreseeable that many developers w i l l adopt a policy of "wait and see" by temporarily exiting the market. 1.5 Purpose If land developers are to respond to the increasing demands of our society for land and Improvements, they must confront these Issues of their existence under a controlled, imperfect market. Objectives and operating procedures may be significantly altered. F l e x i b i l i t y and responsibility of land developers must be ilbunded on a basic understanding of the multipli-city of social and economic forces controlling the land development process. The purpose of this research is to both explore the ways in which land use controls have changed and how land developers must adjust to these new costs brought forth by the new land use controls. 7 Chapter 2 - Background As a point of temporary departure in the study of government restrictions on land development, i t seems reasonable to review some of the traditions! thoughts on the individual and his relationship to the state. The question of proper balance of power between the individual and the state Is a topic preponderously complex, yet sadly misunderstood.. It has undoubtedly been one of the most Important factors of influence In the process of social and philosophical development. Many social and philosophical questions owe their existence, to some extent, to the basic issue of central versus individual decision-taking authority. 2.1 Real Property Real property consists of land and those structures or qualities permanently affixed to that land (as distingui-shed from personal property). Because of real property's nature, i.e. immobility, durability and heterogeneity, i t has become a suitable medium through which the issues of decision-taking authority (that i s , the individual versus the state) have come to the attention of those not usually conversant with p o l i t i c a l philosophies. Land - Its control and use - has become a testing ground in the evolution of politico-economic philosophies. Land use and control is not, however, the only medium through which po l i t i c o -economic philosophies are weighed and evaluated. 8 Most production processes (processes involving the development of raw materials into a finished good) are controlled or regulated by the state, at various stages, in the name of the health, safety or welfare of the public. 2.2 Economic-Political Philosophy There appears to be a strong relationship between the Idealogies of an economic system and p o l i t i c a l philosophy. Economic systems could be characterized by degree of com-petitiveness, ranging from perfect competition (many price-taking buyers and sellers of a homogeneous product or service) to monopolies (a single buyer and sell e r who have the power to set price and output). Likewise, p o l i t i c a l philosophies may be characterized by the balance of decision-taking authority that exists between the Individual and the state. The polar cases - laissez faire and totalitarian dictator-ship of production - dramatize economic principles. "Laissez faire" as a policy, however, has never implied no state inter-vention. Given the propensity to act monopolistically, government must always act positively to preserve competition. The prime reason for the strong semblenee between economic systems and p o l i t i c a l philosophies consists in the manner in which decisions are made. It seems that i f dec-isions are made on an Individual or decentralized basis, a competitive market economy (laissez faire) based on rules of law and coupled with government development in areas where there Is no alternative to collective choice, i s perfectly 9 feasible. Conversely, the conditions and effects of centralized decisionmaking promote and strengthen posi-tions of monopoly advantage in the economy. Under a competitive or market economy, prices, not the state, are responsible for the allocation of the scarce resources of the country among Its various uses. Some feel a system of this nature may reflect human needs in relation to natural forces and resources more adequately or e f f i c -iently than a state allocation system."*" A state controlled or central decision-taking economy is often contrasted with the shortcomings of the price mechanism (as a resource allocating or income-distributing device) in a competitive economy. It is believed that unfortunate distortions or misallocations of resources or incomes may occur because prices - the allocative tool of the competitive market economy - may not adequately reflect f u l l social costs and benefits attaching to decisions and 2 resource use. If individuals were unfettered In their decision-taking, instances could occur where the social net product of a decision was negative even though its 3 private net product was positive. Despite the costs and effects of government intervention, public action in such circumstances may improve the social product. But public intervention cannot always be regarded as yielding a net benefit In this way. It may i t s e l f generate spillover costs; moreover, state action may raise problems 10 concerning the allocational or distributional phases of any state sponsored economic activity.^ In other words, how can the state f a i r l y allocate among the people costs and benefits generated by its programs? High costs of administering state sponsored programs, losses of overall efficiency and Inability of production to reflect the preferences of individuals may be f a i r observations of an 5 economy dominated by centralized decision-taking. 2.3 Dual Economic System The contemporary "dual economic system", visible in the United States and Canada, is one in which the state is allowed by law to function within the market economy. The degree to which the state becomes involved in economic matters varies among the states and provinces, according to the particular needs of the people. The precise nature of state participation within the economy is a topic of constant debate and legislation. However, i t Is generally held that the state should be involved in economic matters only in such cases and at such times as the competitive market economy has been unable to prjoduoe desirable net social benefits. Guidelines as to where the state should operate include: Areas In which "inadequate" expenditures may be undertaken by the private sector (e.g. education and national defense); areas in which in which the state could purchase goods or services at a cheaper cost to society as a whole; and, f i n a l l y , areas in 11 which an expenditure by the public sector would be of "great importance to the genral Interest and welfare." This criterion is suspect as an operational rule because what is "of great Importance to the geneualiinterest and welfare" varies not only among individuals, but may vary in one person's mind from time to time. 2.4 Safeguards In order to insure the high operational quality of a dual-economic system, two primary safeguards must be protected. First of a l l , elections mu3t remain a viable tool in upholding the w i l l of the populace. If society is to be serious about having a state body responsible and account-able for its a c t i v i t i e s , individuals must press for valid elections and then must vote for the candidate (or refer-endum) of their choice - at a l l levels of government. Secondly, the judicial branch of government must be protected and encouraged. Laws must be both f a i r and expedient in preserving the competitive nature of the market economy. The courts must uphold the basic "dual-economic" principle that planning (and other state activities in the economy) and c ompetition can be combined only by planning for competition, but not planning against competition. If society,a s we know i t today In North America, is to function with a minimum of negative net social product, 12 the dual economic system must be preserved. The system must be allowed to react to changes in social needs promptly and in sequence. Namely, after the state recognizes a significant change in social needs, its duty should be to help shift (or create) effective demand. By altering demand, the market economy should be encouraged to satisfy that need Q with available resources. Now, with a basic understanding of the present "dual economic" system, we may direct our attention to the land market and its behavior within that system. 13 CHAPTER 2 FOOTNOTES 1 John Jewkes, Public and Private Enterprise (London: Routledge and Kegan Paul, 1965), p.88-89. 2 Philip H. White, "Urban Redevelopment Policies" (London: The Chartered Surveyors Annual Conference, 1961),p.7. 3 Paul C. Johnson, "The Changing Rural Community and Need for Modern Land Policy," Modern  Land Policy (University of I l l i n o i s , Land Edonomics Institute, 1960), p.167. 4 K. H. Parsons, "The Place of Land Reform in a Developmental Agriculture Policy," Ibid, p.302. 5 Jewkes, op c i t , p.8-26. 6 Jewkes, op c i t , p.27-28. 7 F. A. Hayek, The Road to Surfdom (Chicago: University of Chicago Pre3s, 1944),p.42. 8 N. Jacoby and F. G. Pennanc©, "The Polluters: Industry or Government?," (London: Institute of Economic Affairs, 1972),p.28. 14 CHAPTER 3 REAL PROPERTY AND LAND DEVELOPMENT Land and the structures built upon i t d i f f e r very l i t t l e from other consumer goods. But, as mentioned previously, real property is somewhat alien to other consumer goods. 5.1 Immobility and Durability The Immobility of real property implies that the services rendered by the existing stock (of real property) must be consumed on site. It follows that the capital value of any structure vis-a-vis others w i l l be determined by its particular character and location. Because of lands 1 Immobility, property values reflect, to a large degree, the externalities of that area. Hence, improvements, whether public or private, reflect in the value of any given s i t e . Because structures are durable, the standing stock of real property is very large in relation, to any flow of additional new supply coming on the market in any one year. What this means is that at any given time, the average price of structures w i l l be determined by the extent of tdemand for, and the quantity and quality of, the standing stock. In contrast for most other consumer goods, existing stocks are of minor importance: for price determination, what is essential is the cost of new supplies and therefore the rate at which they are flowing on to the market relative to the rate at which demand and consumption is taking them off. 15 Important consequences follow from this simple distinction which deserve attention in light of land development. 3.2 Consequences F i r s t , neither builders' costs nor the price or av a i l a b i l i t y of building land can materially affect the current average level of real property values. Land developers look to the existing level of real property prices and in light of current construction and develop-ment costs simply decide whether they can profitably develop at the land price they must pay for building sites in a particular location. Only slowly over time, as new buildings gradually changes the size of the standing stock in relation to demand, w i l l the level of real property values be affected. Second, although individual developers may be checked by particular land prices they think are too high to support profitable development at the going level of real property prices, i t Is none the less the collective bids of developers that sets the tone of the market for undeveloped lands and influence land owners expectations. Land prices are deter-mined by house prices rather than the other way around. Hence, the costs of land are a function of new building values, which in turn are determined, in the main, by the price of existing buildings. To carry the analogy one step back, the price of unserviced land becomes a function of the price of finished l o t s . Only in the long run, after the 16 stock has changed relative to demand^ w i l l prices change, Changing consumer preferences are apt to negate any possible price declines to be achieved through increased production.^" A refusal by some landowners to part with land at the going level of prices offered by developers doesn't i n v a l i -date this analogy. Owners expectations of future real property values may be such that they expect t o gain by holding back now and selling at a later date. If the costs of withholding (opportunity costs and out-of-pocket costs) are less than the expected increase in land price, land owners w i l l continue to withhold. And so, land owners encourage a transfer of building operations from the present to the future when demand pressure Is expected to be coven 2 stronger than now. 5 .3 Stock-Flow The theory of resource pricing (land Input), like the theory of finished product pricing (land and Improvements) has focused upon the price of a flow variable. For instance, a wage rate is the price of a flow of labor services (dollars per hour of labor services employed). A raw material price is quoted by existing land owners as dollars per quantity (dollars per acre of a fee simple sale). A related question ©enters upon the value of ®. saitock. What is the value of a lot i t s e l f in contrast to the services per time period rendered by that lot? These services can be viewed conveniently as asstock embodied in the land and 17 released in the form of flow as the lot is used (in production). Therefore stock-flow analysis of land is the value of land i t s e l f versus the value of its use (the monthly or annual rental price). The decision of a firm to invest In a new development project Is a profit maximization decision. It hinges in the return expected from the project. But this return has two aspects. F i r s t , since real property w i l l have a useful l i f e stretching over many years, i t is an expected return accruing to the land developer over several years in the future. Second, investment decisions entail a choice among alternatives, Thus return is a comparative return, con-sidering alternative uses to which funds can be allocated. 3.5 Summary A l l "economic" profits and rents (that i s , "surplus" profits and rents, or profits and rents earned above "normal" economic returns) that can be competed away - w i l l be. Com-peting away economic profits and rents may occur by either market entry of new firms or capacity expansion of existing firms. Likewise, when firms operate at an economic loss, either negative economic profits or rents, there w i l l be a tendency to limit production or exit the market and seek alternative Investments. If economic profits can accrue to a land developer, the present value of the flow (expected Income stream) is 18 substantially greater than the cost of the s tock and costs of production, additional stocks of real property w i l l be brought onto the market. The economic profits will/act as an Incentive for market entry by profit minded land develop-ment firms. As the stock increases relative income flows, economic profits that can be w i l l be competed away and the incentive for market entry w i l l diminish. If the stock, relative to flow, produces economic profits lower than those that could be earned in alternative investments, firms w i l l be encouraged to exit the land market. CHAPTER 3 FOOTNOTES 1 S. W. Hamilton, "Public Land Banking-Real or Illusionary Benefits" (Vancouver, The University of British Columbia, October 1973), p.6-8. 2 F i r s t , rents are the profits earned on capital. Second, "Can be" infers to Instances of mergers of competing firms, cooperative agreements or collusion, governments by f i a t " " f a i r price" legislation, etc. 20 CHAPTER 4 LAND MODELS It is the function of land developers to convert underutilized or unused land to a higher use, hopefully the highest and best use. Maximum residual land value (market value of finished product less development costs and profit) denotes highest and best use. The process of conversion, however, unlike other production processes because of the unique nature of real property and the length of time required for the development, is very costly in terms of the finished product. 4.1 Model Number One In order to explicate this production process, we may Illustrate what happens to a piece of real property In Its conversion to its highest use. The market for undeveloped land is a derived market dependent upon the market for shelter. The return from ownership of undeveloped land is not primarily income but rather capital appreciation. Essentially the market for undeveloped land is a storage or holding market. The land, i f i t is productive, produces less thantoptimal output since the owners foresee a change in land use and are reluctant to commit capital to the existing agricultural use.^" undeveloped land is subject to three sets of buyers. One set, whose buyers for agricultural use establish a minimum price. The other two sets of buyers may be loosely defined as developers and Investors. 21 A developer w i l l purchase undeveloped land providing he can develop the property and r e s e l l at a p r o f i t . Due to the nature of the land market, the developer acts a3 a price-taker for both the land and the f i n a l development. The third set of purchasers operating in the un-developed land market are investors and land speculators. Their role i s to withhold land from development pending resale at a higher price. Assume a land developer decides that the optimal structure to be built is a house, selling for $40,000. Before the process of conversion is initiated, the devel-oper estimates building costs at $30,000, while the developer expects a profit (or wage) of $1000. Therefore the developer can afford to bid up to $9,000 for the acreage lot , which is assumed to be sufficient to acquire the quantity of lots desired. Even i f the developer managed to acquire the lots for less than $9,000, he would have no incentive to s e l l the house for less than its current market value ($40,000). The savings on the acquisition price of the lots would merely increase developer's p r o f i t . Assume that by the second year the prices of homes have increased by 10 percent to $44,000, while building costs have increased by 5 percent to $32,500. In this year the developer can afford to pay $11,500 maximum bid price for the l o t , but this represents a 28 percent increase in raw land values. 22 Sales price #40,000 Yr. 1 $44 Yr. 2 ,000 % Change Development cost and profit ($31.000) ($32,500) i 5% Max. lot bid price 9.000 $11.500 4 28$ As may be seen from the above ill u s t r a t i o n , landpprices do change proportionately more than the sales price of the house, given the leverage created by a smaller change in development costs. Only in the case when development costs increased at the same rate as the sales prices of the homes, a l l factors assumed constant, would land prices increase by the same amount.^ 4.2 Model Number Two In this market process, individual land owners may alter their expectations as to future changes in house prices and elect to withdraw more land from the market. The decision to withhold factor inputs (such as raw land in this case) w i l l depend, in part, on the land owner's opportunity costs of alter-native investments and his personal "out-of-pocket" costs. It should be pointed out that a decrease In house prices, or stable house prices and an increase in development costs 23 w i l l combine to collectively decrease the bid prices for land by a l l developers. I Change - 0 -4- 5%  -17%" The results of increasing development costs under a stable market of house prices may also be illustrated by stock analys i s . Figure 1 exemplifies in graphic terms the interaction of housing stock supply and demand as seen by the land devel-opment industry. House prices are set in the industry at P, at a quantity of Q,j. With increases in development costs, the supply of lots w i l l be reduced from S| to S j - as firms 4 find i t more d i f f i c u l t to cover costs in a stable market. With this stable price level of P|, a decrease in the supply of building lots w i l l reduce the quantity of lots demanded, from Q( to Qa in Figure 2. As a f i n a l step, the decrease in the quantity of building lots demanded by a i l developers w i l l reduce the bid price by the individual firm from P, to P A in Figure 3. Yr. 1 Yr. 2 Sales Price $40,000 $40,000 Development costs and profit Max. lot bid price 24 Pig. 1 Fig. 2 Fig. 3 " Indus tr; Stock' I "Decrease in S, due to increased development costs as seen by a l l firms." "Building lots as seen by a firm." - Di-> P i <p. 4.3 Model Summary To summarize the two basic models mentioned, we must remember that land prices are^determined by house prices rather than the other way around. Therefore, neither development cost nor the price or availability of building land ©an materially affect the current general level of house prices but they do affect supply of New Houses. Increasing development costs can only be accounted by decreasing bid prices for usable raw land or by sacrificing developer's pr o f i t . Sales Price - Development Costs Gross Revenue (Fixed by Market) (Fixed) (Fixed) -"Costs of Planning" (Variable) - Profit (Variable) Maximum Land Bid Price (Variable) 25 4.4 Development Obstacles A very c r i t i c a l phase of the development process occurs between the time the land is purchased by the speculating land developer and the time i t is eventually sold as residential lots. This production process consists in finding the right combinations of land, labor, capital and managerial ability.'. However, imposed obstacles of government control and regula-tion and their costs in terms of the value of the finished 5 product increases with increases in such controls. Before the developer gets too concerned with these imposed ob-stacles, he must establish whether expected demand sufficiently warrants his production. He should acquaint himself with marketing f e a s i b i l i t y studies, analyses of vacancy rates or trends in building permits within the general area of his site in ascertaining housing demand. 4.5 Site Selection Site selection is the f i r s t step signifying commitment in the conversion process. The developer should study existing zoning requirements, lot access possibilities and available public services, while investigating any possible use r e s t r i c t -ion peculiar to the si t e . Enquiry into the t i t l e , possible easements, restrictions or covenants can usually be made at the local government office. The acquisition of the desired site w i l l occur i f the floor price of the land owner differs from (is less than) the developer's ceiling price by a margin sufficient to 26 compensate for the risks inherent in the development process. In an attempt to make these risks explicit to the vendor rather than leave them implicit in an offer price, an offer to purchase or an option to purchase are the most popular means of land transaction. In an offer to purchase, the developer may enter subjective clauses of conditional precedence in the drafting of the purchase offer. Common conditions would include a purchase subject to zoning approvals or variation, acquisit-ion of a l l parcels within a development, or attainment of access and building permits. Alternatively, the land developer may desire to ut i l i z e an option to purchase, If he would like an exclusive right to purchase within a specified length of time and is willing to pay sufficient consideration for such a right. The option would then be registered against the t i t l e , including such Items as the amount of consideration paid, the term dates of the option, and extension or assignment clauses 4.6 Financing Financing of the development is primarily dependent upon the favoured technique of the particular developer. In any case, many developers require a mortgage commitment by a financial institution before the land acquisition. Techniques of financing development projects, which 27 are largely beyond the scope of this paper, are usually contingent upon the developing companyiSs history, size, assets and preferences. It appears as i f a rational land developer w i l l strive to minimize exposure of his own capital to the risks of an uncertain market. This objective may be accomplished to some degree by u t i l i z i n g the principles of leverage (high loan to value ratio) in a conventional debt instrument such as a mortgage. Sale-lease-backs may also minimize risks, but can seriously curtail return on the investment. In this ease, the developer sells the owner-ship rights of the land and Improvements to the vendee in return for a long term lease, in which the original equity and investment proceeds are returned to the developer. A joint venture is another popular financial vehicle which groups the particular parties together in a prearranged contract. It appears that in many cases developers can min-imize risks by exposing only the costs of their own expertise, while the other partners usually contribute various combina-tions of both debt and equity capital. These aforementioned techniques are not meant to be a l l inclusive; but only meant to present some of the basic f l e x i b i l i t i e s of modern developmental financing. These tools are relevant for this discussion in that they can provide room for significant erosion of developmental return to occur from increased development costs without affecting proportion-ately the amount of development. The f l e x i b i l i t y afforded by the various mixtures of debt financing and equity participation 28 appear to f u l f i l l some important, i f unintended or latent, functions within developmental economy. This f l e x i b i l i t y or "slack" (surplus over sufficiency required to finance a project i n a stable market) permits firms to "ride-out" 7 adverse market conditions or other similar developments. 4.7 Costs The different costs involved in the development project constitute a c r i t i c a l area of control. These developmental costs may include mortgage interest, legal fees, servicing, professional-technical fees (e.g. for architects or engineers), real property taxes, labour and materials ( i f development i n -cludes construction of buildings), construction or interim loan interest, and any leasing or letting fees. The land developer, like any other producer of economic goods in the private sector, is motivated by profi t . He w i l l produce projects i f the market value of the finished product, less development costs are sufficient to pay for the raw land and yield a reasonable p r o f i t . He w i l l operate under govern-5 ment constraints and market demands. However, government constraints and market demands are perpetually in a state of uncertainty and change. The developer may be unsuccessful on occasion i f he appraises the current state of the market incorrectly (over-estimates f i n a l demand) or underestimates development costs. Risks are abundant in the land development 29 process; however, the infusion on governmental constraints and controls affects risks in an amusing manner* 4.8 Uncertainty In theory zoning and other explicit land use controls would reduce uncertainty in the long run. Certain developers learn how to operate under a controlled market and are able to raise sufficient capital to finance those expenditures inherent in providing required public services, as well as financing the social costs of planning (costs accruing upon the developer because of delays within the approving process). For these developers who are capable of attracting sufficient capital, non-market constraints, such as zoning by-laws and subdivision regulations, have effectively minimized uncertainty by elimin-ating those competing developers who either are not capable of attracting sufficient capital necessary under a controlled market or who became i l l i q u i d after purchasing raw land at an g excessive price. An excessive price in this regard means that the developer unsuccessfully speculated, i.e. either market values had not reached anticipated high levels or develop-mental costs unexpectedly increased to a level which made the acquisition price too expensive in light of existing or future market values. Generally speaking, then, a controlled market can be quite beneficial for those firms willing and capable of providing the necessary financial resources. Those firms not willing or able to do the same w i l l be forced to exit the market, either temporarily or permenently (depending, of course, 30 upon their desire to stay in competition). 4.8 Resource Risks A relatively new area of risk in the land development process, which has become apparent in most regions of the United States, is attributable to shortages of natural resources. With these shortages, the element of resource risk compounds the risks prevalent in the market. Developers can easily be forced from a profitable job by shortages in steel, lumber, cement and especially petroleum. As prices of limited supplies are bidded upward, i t is hoped that comparable substitutes w i l l be permitted to enter the market. If this happens, building authorities must be flexible and practical in accepting innovations and substitutes - referring to the form of building regulations (i.e. "Per-formance Standards" versus "Absolute Standards"). If such regulations remain insensitive to change in the market, the price of f i n a l products must r i s e . 31 CHAPTER 4 FOOTNOTES 1 This market of "undeveloped" land is considered a "latent" land use in Chapter Three of "Price Movements in Undeveloped Land Facing Urbanization: A Micro Study," Dissertation'^ by S.W. Hamilton (Berkeley, Center of Real Estate and Urban Development, 1969), p.44-76. 2 The absolute figures used in these exemplary models are not intended to reflect any particular situation. 3 Market models were abstracted from S.W. Hamilton, "Public Land Banking - Real or Illusionary Benefits, op c i t , p.8,9. 4 But, suppliers of undeveloped land may see the shift as temporary; hence, supply curves may s h i f t . 5 John J. Gunther, "The Federal-Local Partnership in Urban Renewal,"'4 Real Property in the Urban Society - A  Compilation [University of Virginia; Virginia Law Weekly, 1965-1966), p.117. 6 David E. Gillanders, Barrister and Solicitor, "The Real Estate Development Process," (University of B.C.* Executive Programmes, April 16,1973). 7 Albert 0. Hirschman, Exit, Voice and Loyalty (Cambridge, Mass.: Harvard University Press, 1970), p.14. 8= This analysis assumes a rigid system of zoning controls y However, under a weaker system where control may perhaps he less systematically applied, a positive change (more controls) may in effect increase uncertainty. 32 CHAPTER 5 CONVENTIONAL LAND USE CONTROLS Land use controls w i l l be classed as "conventional" or "reformed" for the purposes of this paper. Discussion of "conventional" land use controls w i l l be limited to zoning by-laws and subdivision regulations. The two particular land use techniques are in wide usage in most areas of North America today, but they were conceived and put into practice before the Depression in some major urban areas. 5.1 History The f i r s t zoning ordinances were a direct extension of the police powers of local government to protect the citizens' health, safety and welfare. These original by-laws were controls upon the use of property, as opposed to controls upon the development of real property (changes in zoning, building "specs"). Ey 1920, local governments were authorized to draw up districts on a cit y map to separate residential areas from "noxious" no-residential areas. Local authorities extended the original powers of zoning to limit building heights and densities.^" The objectives of these by-laws and regulations were to protect property values by requiring uniformity within each zoning d i s t r i c t . Homogeneity of uses was essential In order to exclude undesirable operations or land uses which could potentially ruin the values of nearby properties. Building 33 heights and density limitations were an attempt to prevent over-exploitation. Moreover, i t was f e l t that i f the major development activities of the city were ^ controlled, public services could be planned and operated more effi c i e n t l y than they could i f l e f t to uncontrolled development. 5.2 Authority The zoning powers vested in local governments came typically from state and provincial enabling regulations. Therefore, these powers were delegated and were subject to review by the state or provincial government. It was f e l t that zoning could give <£ity planners the force to Implement their plans. Local planning administrators legally had limited discretionary powers and were subject to judicial review i f they exceeded the boundaries of their power (possibly u t i l i z i n g common remedies such as an appeal to a tribunal, mandamus, and writs of prohibition or c e r t i o r a r i ) . The extend to which land development can be c ontrolled by the state is dependent, quite generally, in part on what the public w i l l accept, ih part on Its delegated authority, and in part on what the courts w i l l uphold as a reasonable o exercise of that delegated authority. Within the three-tiered system of government in both the United States and Canada, local government has had the primary responsibility in land control. Local zoning 34 administrators have created, over the years, an assortment of zoning ordinances and by-laws, subdivision regulations, master plans and special d i s t r i c t s . The state or province:.-! intervened only to alter local control powers, to establish special commissions, to raise funds for particular programs, or to condemn property for the municipality under its eminant 3 domain or confiscatory authority. Until the adoption of the National Land Use Legislation in 1973, the only role the United States federal government had in land control was through Its various housing programs,. Guaranteed and insured mortgage loans and housing grants offered by federal a geneies (Veterans Administration and Federal Housing Administration) were traditionally only mechanisms of land use policy of the federal government. 5.5 Market Intervention The history of land use controls has been a history of government intervention in the land market. There are varying degrees of intervention. Market manipulation or direction and outright public ownership may be forms of implementation of government control.^ The "carrot approach" (as opposed to "stick" approaches such as building and subdivision reg-ulations) of inducement and incentive may involve offering loans, tax exemptions, aids in land acquisition, direct subsidy payments and loss guarantees to land developers, In 35 return for production." Conventional land use controls are w r i t t e i i , Statute laws enacted to limit the "bundle of rights" of land ownership and use. Land control legislation is not founded upon Common Law principles of land use because i t seemed that community conveniences were ignored when i t was the pre-rogative of every individual to build upon his land as he g saw f i t . Conventional land U3e controls evolved from a realization that the value and usefulness of each parcel, not only to the owner but to the community, is v i t a l l y affected by the use made of the adjoining parcel. If Common Law principles upheld a system in which the rights of the individual were unlimited, there would be no rights remaining to be required. In order that corrective measures such as land use controls do not produce more harm than good, there must be a proper balance between government interference and individual rights. As" a rule for many years, conventional land use controls and land developers co-existed and operated "hand in hand." Many developers were able to operate profitably because they learned how to operate within the limitations of land use control. Those entrepreneurs who remained in the controlled market of land development, needed nothing more than operational experience and the a b i l i t y to raise required capital. Under a s t r i c t and r i g i d system of zoning controls, costs of zoning 36 (costs of variances, approvals and delays) are evenly distributed among a l l development projects, including the marginal lot brought into use. It appears, however, that zoning controls, not so r i g i d l y enforced, may create advantages in market value for those who receive "favorable" treatment. Thus, zoning can create value for those who know the control system's weaknesses. Over time i t appeared as many problems arose within the urban environment concerning urban growth. A national movement to improve the quality of land, a i r and water began to spread across the land in the late 1960's. Land develop-ment, as i t was known then, became a l i k e l y target for increased government control. 37 CHAPTER 7 FOOTNOTES 1 William J. Doebele, "Key Issues In Land Use Controls," Urban Land Use Policy: The Central City, ed. Richard B. Andrews INew York: The Free Press, 1972), p.1-9. 2 H. W. Hannah and N.G.P. Krause, "The Role of Law In the Development of Land Resources," Modern Land Policy, op c i t , p.326. 3 Marshal Kaplan, Urban Planning in the 1960's - A Design for Irrelevancy (New York; Praeger Publishers, 1973) p.87-89. 4 White, op c i t , p.5. 5 John W. Reps, "Pomeroy Memorial Lecture: Requiem for Zoning," Urban Land Use Policy: The Central City, op c i t , p.10,11. 6 cf. Toronto King ('23) 54 O.L.R. 100 at 102. 7 R. H. Coase, "The Problem of Social Cost, " The Journal of Law and Economics, ed. Claron Director (Chicago; The University of Chicago School of Law, 1960), p.43,44. 38 CHAPTER 6 WHY CONVENTIONAL LAND USE CONTROLS CHANGED "Conventional" zoning before 1920 attempted to frustrate the use of automobiles by placing housing districts near public transportation f a c i l i t i e s . Commercially zoned districts evolved near the city centers as well as along ar t e r i a l road-ways. These examples illust r a t e how conventional zoning followed the market, and the market then being dependent on public transportation f a c i l i t i e s . 6.1 Mobility The original concepts of controlling di s t r i c t s and their s u i t a b i l i t y to existing public transportation f a c i l i -ties was considered worthwhile at that time. But the citizens, with their increasing incomes, chose to own automobiles in ever-Increasing numbers. This new "mobility" frustrated these early objectives, aimed at controlling urban movements Old zoning ordinances, created t o control mobility, were observed to be . . . replete with i l l e g i b l e maps, preposterously small scales, incomprehensive texts, contradictory definitions and provisions, chaotic organization and jungle growths of amendments and bad administration . . . By creating zoning di s t r i c t s within an urban region, conventional zoning by-laws had significant adverse affects upon the structure and nature of the c i t y . These adverse affects appeared to have been due to the inherent weaknesses of zoning rather than i t s application. In some cases, people 3 9 were separated by great distances from their places of employment. Of those people who desired to live in single-family dwelling units in the suburbs, commuting to the central business d i s t r i c t often overburdened the transport-ation system. Baumol suggests that the transportations!, f a c i l i t i e s were also overburdened by those lower income workers who lived near the city centers and had to commute 2 to surrounding, urban fringe areas to their jobs, 612 Urban Design Conventional subdivision regulations showed their i l l effects primarily In the monotonous lay-out and design of housing subdivisions. Minimum building requirements, forced lower income, single-detached housing structures to be of a ";minimum standard". When minimum standards of building and lot requirements were established, many members of society were, in effect, excluded from the new housing market. Aside from this exclusionary nature, conventional land use controls became highly inflexible i n that continuing change of individual preferences and market (business) patterns 3 may often contradict existing zoning by-laws. After time, however, i t has been shown that zoning adjusts to changes in the market via zoning variations. However, this i n f l e x i b i l i t y is further compounded by the negative nature of settingea code of minimum building standards or by limiting height and density. In either case, some suggest that innovation and imagination may be discouraged when development is constrained by inflex-4 ible and negative conventional land use controls. 40 6:«3 Urban Finance Within such guidelines, zoning lent i t s e l f to the creation of positions of advantage and profit, for either the landowners or developers or both. "Profits and^doing good'" became synonymous. The developer and the planner spoke the same language." Capital gains accrued i f a landowner or developer could get a zoning variance that would permit his land to be put to a higher valued use. Since land is essentially a function of what is allowed to be constructed on the land, zoning decisions, in effect, became "the power to create money." There is evidence to suggest that revenue consider-ations have tempered the use of zoning controls: . . . i t is quite clear that f i s c a l considerations frequently discourage good planning and encourage a self-centered autonomous ^ development of local communities . . . Thus, zoning has been applied to exclude from an area people of less substantial economic means. This exclusionary effect was based, i t seemed, on the premise that municipal revenues could be better enhanced by large Industrial-estate a S S e S S -CS ments. However, with the experience of hindsight, some t-: municipalities have begun to realize that zoning, with a l l its p o l i t i c a l influences and implications, represents an i n e f f i c -ient financial tool. 41 As a negative device, zoning has curtailed development, construction activity, business, and employment, and has thereby served to reduce real estate and other tax collections. When local governments erect exclusionary walls, they do not only exclude people 9 and things, they also exclude tax receipts. As the demand for more and better public services increased with increasing populations and incomes, tax revenues had to keep in pace. If, under conventional zoning trends, density, building heights and land use are a l l controlled, this means that the a b i l i t y of municipalities to raise additional taxing revenues is reduced, assuming no Increases In the m i l l rate; and the a v a i l a b i l i t y of funds needed to pay for increasing public services is reduced rather than enhanced by conventional land controls. As long as property taxes are a direct function of the market value of the land and improvements, a decrease in land density and use, on an aggregate level, w i l l cause a decrease in the amount of taxes forthcoming. We can illustrate this with an example of highest and best use sites which havebeen subjected to density controls (and lowered values), and where the loss In value is not offset by the increase in value elsewhere where zoning is more loosely applied or not at a l l . 42 A transportation model would reveal: Where SV(A)a site value of A where controls were enacted t » transportation distance (cost) SV(B)= site value of B, were controls were less stringent Therefore, SV(A) > SV(B) by t If, SV(A) is decreased by control restrictions w i l l SV(B) increase pari passu? If so, municipal revenues do not suffer. (Unless SV(B) is in another municipality) But, SV(B) Increases less than the amount SV(A) decreases because B sites are less desirable than A sites. So, unless none of B sites are developed, the aggregate of a l l site values must decline. 6.4 The Changing City Some authorities note the city of today differs quite substantially from the city of years back when the conventional land use controls were f i r s t enacted. Doebele suggests that todays central c i t y is no longer an integral puplic unit capable of annexing or incorporating other surrounding areas at its pleasure. Metropolitan areas may now be symbolized as conglomerates of individual c i t i e s , 43 each acting within the guidelines of the metropolitan frame-work of local government. Each individual city must consider the ramifications of i t s land controls upon neighboring municipalities. Secondly, whereas cities of old were considered "melting pots", where individuals of different backgrounds could l i v e , work, and compete harmoniously, urban populations appear fragmented today, more than ever before, into different social and economic groups. For this fact, land use controls have taken on a strong p o l i t i c a l backing by those various groups. Finally, there has been a general trend over the years toward more state and federal government Intervention in the affairs of the c i t y , which was not so at the time when conventional land use controls were f i r s t put into e f f e c t . ^ From Doebele's suggestions, however, i t is d i f f i c u l t to ascertain i f controls were the cause of the effect of these changing urban characteristics. Conventional land use controls have been forced to change, not only because of the changing nature of the city's structure (and size) and the f inaneial i n a b i l i t y of local governments to provide public services, but now also because of the attitudes of homeowners in the face of changing tax, price and quality of public services. Increasing demands by some homeowners for public services are matched by attempts by those homeowners who can do so to move to other tax juris-dictions where either the quality or quantity of benefits per tax dollar is higher or the t ax b i l l Is lower. Shifts of this 44 kind has generated much talk of the impending "bankruptcy" of some local municipalities. One effect of this realization that current tax dollars are not sufficient to meet current demands for more or improved public services (having the cake and eating It too?) has been to propel the conventional land developer Into an acceptance of new responsibilities. Con-temporary local governments, with their power to control land development and their apparent reluctance to Increase taxes, have transferred many of their own social functions and responsibilities to the land developments process. Land development, under some new "reformed" land use controls (which w i l l be analyzed in a subsequent section), is not only a process of creating and producing shelter, but has also become the entity responsible for providing essential public services. There appears to be some subliminal implications for this shift In the responsibility for providing the essential public services. Why should buyers of new developments have to meet the costs of public services (included, in most cases in the purchase price of the finished unit) which were prev-iously borne by the community as a whole? Is there a reason why communities are having a more d i f f i c u l t time in passing capital improvement bonds by a popular vote? The economic , impacts of increasing the responsibilities of land developers to provide these basic public services appear to be shifted back onto the price of the. land input. Landowners, i t appears, w i l l be offered lower bid prices by land developers, 45 especially i f the market prices of homes is stable or advancing very slowly. However, as discussed later, in the long run, a l l increased development costs w i l l be borne by the ultimate user of the stock. Of course, the faster the market values of the existing stock increases, the faster new stock purchasers (newcomers) pay for the f u l l costs resulting from the land developers being required to provide public services. 6.5 Politics of Land Use Controls Land planning consists in the intervention of the public sector into the process of land tenure and use. Conventional land use controls represent land planning with a l l i t s side effects. Weaknesses in prevailing land controls, states Marc Regan, from their limited coverage and from flaws and inconsistencies in certain component parts. Instead of a definite and unified land program, we have an uncoordinated assortment of selected a c t i v i t i e s I t is l i k e l y that some of these "inconsistencies" may perhaps be some of the consequences of land use control. In practice, the operation of land use controls becomes open to p o l i t i c a l manipulation. Zoning control, in this context, effects l i t t l e more than the exclusion of those people not considered financially or socially desirable from a Municipal point of view. In this way, some believe that conventional land use control becomes a simple legal ra t i f i c a t i o n of the 46 savage and complex p o l i t i c a l struggles, involving pressures from large numbers of organized interest groups, the needs and electoral fortunes of cit y legislators and the Increasingly cynical delaying tactics of the city planners. 12 Conflicts of interest among the planning bureaucracy i t s e l f make conventional land use controls very d i f f i c u l t to administer. It becomes almost impossible to develop administrative procedures to reconcile these conflicts of interest and bring about a mutually acceptable solution. Along the same lines, conventional land planning becomes subject to conditions of inertia. Procedures and p o l i t i c s , once established, often become frozen, temporarily If not 13 permanently. Conventional land use controls, being exclusionary and p o l i t i c a l by nature, has had various repercussions in the land market as a whole. A typical "chain reaction" to conventional zoning might be initiated when the supply of land to be produced for urban use is restricted. Given a restricted supply of land, and given normal increases in income and population, existing real estate prices are competed upward. Our previously discussed analysis stated Increasing stock demand causes an upward push on prices of existing stock, which leads to higher bid prices for building land. Land use controls, however, increase developer's direct costs, and other things being equal, w i l l lower bid prices for development land. Therefore, unless 47 lower bid prices for development land so affects expectations of landowners that bid prices for that land rises faster than otherwise, we may have to conclude that decreased bid prices 14 for raw land is a l i k e l y result. Additionally, witn increasing real estate values under such a strong market, mortgages would have to increase for both the land developer (acquisition of raw land, construction and other development costs) and the ultimate user (purchase mortgage and any seconds). Some suggest that higher mortgages would therefore incur higher interest charges and thereby would expand the need for casualty insurance. Under this type of chain reaction, i t is f e l t inflation (cost push) becomes 1 c "1 c inevitable, even though others may argue to the contrary. Regardless of the inflationary or deflationary consequences of this chain reaction attributable to land use controls, Broadway notes that a modern economy such as ours is an immensely complicated mechanism and interference at any one point can cause a chain of reaction far beyond those anticipated. Intervention, such as conventional land use controls, can similarly bring not only the effects expected, but a host of side effects which may or may not be welcome. Economic matters are further complicated by the fact that they produce psych-17 ©logical and emotional reactions. Another possible reason for the downfall of conventional land use controls might be, as>Makielski offers, a basic lack of understanding of these effects. Realtors, for example, 48 may be unsure i f zoning actually helps them in their business, while homeowners may be unsure what upzoning in the neigh-borhood would mean in terms of congestion and residential.land values. Business-men desiring general growth and expansion may not be sure If zoning is an aid or a hindrance. This author concludes that civ i c interests know very l i t t l e about the consequences of land use controls as they apply on a local l e v e l . 1 8 6;6 Reform Because of this basic misunderstanding and the counter-productive chain reactional effects of conventional land use control, society, as a voting Interest, demanded reform. "Reform" became a catchword as an Ecology Movement swept the country. Land use control was engulfed in the tide for reform. Citizens became more aware of their surroundings, and consequently demanded laws to protect those natural amenities. The causes of increased environmental awareness are d i f f i c u l t to assess, but the fact remains that land use became prey to "protection-minded" citizens. This reform movement appears to have gained momentum a l l across North America. The alleged failures of conventional land use controls, along with the observed failure of some municipalities to provide public services under sluggishly increasing tax revenues, have a i l primed the pump of reform. 49 CHAPTER 6 FOOTNOTES 1 Stephen Sussna, Land Control - More Effective Approaches Washington: The Urban Land Institute, 1970), p.20. 2 William Baumol, "Macroeconomics of Unbalanced Growth " (American Economic Review, 1967), p.415-417. 3 Bernard H. Siegan, Land Use Without Zoning (Lexington, Mass.: Lexington Books, 1972), p.78-79. 4 Arthur G. Foster, "Design of the Urban Landscape," Real Property in Urban Society - A Compilation, op c i t , p.13. 5 S . J . Makielski, "Zoning and Pol i t i c s , " Real Property in Urban Society - A Compilation. opcit,p,18. 6 Hall Leiren, "How Zoning Makes Millions for a Fortunate Few," Vancouver Sun (Jan.25,1973) p.6. 7 Jerome P. Pickard, "Property Taxes - Their Relation to Land Uses," Real Property in Urban Society - A  Compilation, op c i t , p.41,42. 8 Siegan, op c i t , p.124 and The Columbian (Thurs, Feb.1,1973) p. 11.: Municipal District of Surrey is considering the relocation of 640 households in "Bridgeview" for conversion to light-Industrial estates for the purposes of generating additional taxing revenues. 9 This is presumably a "cost of planning." Quoted from Siegan, op c i t , p.127. 10 Doebele, op c i t , p.4. 11 Marc Regan, "Implementing Land Resources," Modern Land Policy, op c i t , p.270. 12 "Drive to Curb Growth in the U.S. - Its Impact," U.S. News and World Report (January 15th, 1973).p.&t~. 13 Charles M. Haa?din. " P o l i t i c a l Planning: Po s s i b i l i t i e s , Limitations, Modern Land Policy, op c i t , p.261. 50 14 Further discussion of this topic is enclosed in the Appendix - Chapter 6. 15 "*Home, Sweet Home1 - Price Is Going Out of Sight," U. S. New3 and World Report (July 30, 1973), p.55-56. 16 Professor F. G. Pennance of the University of B. C. feels increases In real property prices perhaps have the effect of being deflationary because both savings and consumption are decreased by such a large outlay for real property acquisitions. 17 F. Broadway, State Intervention in British Industry -1964 to 1968 (London? Kaye and Ward, 1969), p.12,13. 18 Makielski, op c i t , p.16-20 51 CHAPTER 7 REFORMED IAND USE CONTROLS Reformed land use controls are apparently founded upon many of the principles that lay beneath the inception of conventional land use controls of the 1930's. In fact, many proponents of government control in the land market today argue for even more c onventional szoning. Regan, for example, agrees that the potentials of zoning as a direct measure or tool of public land use policy are promising. Further, Zoning can encourage the conservation of resources, promote the orderly development of urban expansion, protect various major agricultural uses against encroachment against other uses, preserve wilderness and scenic areas, and reduce flood and drought hazards• 1 Jaaoby further encourages the continuance of such a "cure-all" philosophy vested in conventional land planning, zoning and building regulations. He feels these traditional tools are • . • powerful instruments for improving the amenities of space, privacy, recreation, housing, transport and beauty in our c i t i e s . If cities are to offer ample amenities for l i v i n g , much stronger.cgovernment ... w i l l be necessary. 2 In light of the doubtful achievements of conventional land use controls, i t is not apparent why further series of the same controls should be considered desirable. Although 52 reformed land use controls w i l l proudly bear new names and t i t l e s , i t is possible that their effects w i l l match, or even surpass some of the undesirable consequences of their pre-cursors. Alternatively, some have concluded that i t is conceivable that there is no way of controlling the develop-ment of c i t i e s . However, It is clear . . • that this is a possibility that we are so far unwilling to face. The costs are too great to allow evolution to take its course without some effort at 3 control and direction. This basic fear of leaving the city without government controls means that although It he social costs of earlier controls may have far exceeded social benefits, we are presently beginning a new stage in the evolution of ci t i e s by the support for reformed land use controls. The popular theory seems to be that "public regulation of our land, despite i t s present shortcomings, is an important part of our system of government. It must be saved, regenerated-i t 4 and reformed. 7.1 Examples The reformed land use controls may include such devices as Land Use Contracts, Planned Unit Developments, Spot Zoning and Comprehensive. The various devices are grouped together as "reformed land use controls" for il l u s t r a t i v e simplicity, and are not meant to be a l l inclusive of reformed controls. 53 As a group, the intention seems to be that these devices w i l l unify control within each development project. In this way, control is "ongoing" iii that i t w i l l pertain to in d i v i -5 dual projects only. Each development project w i l l not be bound by uniform requirements and regulations as had been the casewith traditional controls. For our analysis, we shall limit our description of this group of reformed controls to Land Use Contracts. The devices appear to illustrate in the most positive manner the nature and meaning of these reformed land use controls. Prior to 1968 i t had become apparent to local govern-ments here in British Columbia that the restrictive nature of zoning controls did not allow municipalities enough f l e x i b i l i t y . Mr. Lane, Chairman of the B. C. Land Commission, suggests that conventional land use controls could not foresee a l l the like l y demands of land users (applicants for building approvals). He suggests that planning in advance, being the restrictive nature of conventional controls, was fine unt i l design l i m i t -ations (such as water fronts, h i l l s i d e lots and set-backs) made conventional controls practically inoperable. Land Use Contracts and other reformed, more flexible control devices, gave local municipalities the authority to tal l e r controls to a particular site by a process of negotiations 6 and concessions. Besides this new f l e x i b i l i t y inherent In Land Use contracts, they became a viable means of attracting municipal 54 revenues. Municipalities util i z e d the Land Use Control as a tool to get concessions and donations for public works (both on-site and off-site) and the general treasury account (by impost charges).' One local developer feels the original objectives of Land Use Contracts ( f l e x i b i l i t y andbeing legitimate source of municipal revenue for smaller municipalities) have changed over it s short l i f e . Now, i t is f e l t , Land Use Contracts can be used as an effective device to limit growth within 7 a region. The particular legislation giving the local governments such authority rests in the "Municipal Act" of the Province of British Columbia. Under "Community Planning" (Part XXI), Section 702 ("Development Areas"), the Council: 702 (A) (2) . . . may,fcby by-law, amend the zoning by-law to designate areas of land within a zone as development areas • . . 702 (A) (3) . . . Upon application of an owner of land within the development area . . . may .. . enter into a land use contract containing such terms and conditions for the use and development of the land as may be mutually agreed upon . . • and 702 (A) (1) . . . shall have due regard to the following considerations In addition to those referred to in 702 (A) (2): (a) The development of areas to promote greater efficiency and quality: (b) The Impact of development on present and future public costs: (c) The betterment of the environment: (d) The fulfillment of community goals: and (e) The provision of necessary public space. 55 With such an array of control weapons, municipalities can dictate thew ays in which land assembly and development proceeds. If the developer's work does not meet the standards agreed upon in the control device, the developer may f o r f e i t o his right to complete the project. 0 The standards agreed upon between the developer and the municipality of course varies among the municipalities according to their needs, but the general trend has been to require the developer to include within the development project such items as: 1. donations of land or equivalent amounts in cash for parks, school sites, public space, playgrounds or other recreational f a c i l i t i e s , 2. off-street parking and loading spaces, 3. a l l landscaping, surface treatments , :'fences and screens, 4. a l l u t i l i t i e s , including water, sewer, gas, telephone and e l e c t r i c i t y (both on and off s ite provis ions), 5. a l l highways, bridges, culverts, lanes and walkways, including drainage, surfacing curbs, gutters, storm sewers, sidewalks, street lighting, boulevards and street s igns, 6. performance, guarantee and security bonds (without interest), 7. certain other ownership conditions, indemnification of the municipality, and payment of a i l accrued taxes and inspection fees. If such conditions as these, contracted within the Land Use Contract, are not met as specified, the developer w i l l f a i l 56 to obtain the necessary "occupancy permit" needed for project finalization before sale. 7.2 Bargaining It is apparent to some that these "saved, regenerated and reformed" land use controls are no more than an extension of earlier controls. The only apparently significant d i f f e r -ence concerns land developers and the new responsibilities required of them. Land developers currently operating under reformed land use controls become legally bound to a development project. Some developers are, in effect, "scared away" from such a controlled market because they feel uneasy In being so strongly tied to a project.^ - 0 The standards of performance are not automatically fixed by the municipality. There is room for bargaining before the Land Use Contract is consum-mated. It is true that these reformed land use controls, are, i f nothing else, more flexible than conventional controls. It i s quite possible, under these new controls, for a land developer to negotiate the amount of land he must donate for schools in return for a density concession (dwelling units per acre). As a result of the Implementation of these new devices, "bargaining between government and property owners is now a valid and acceptable zoning practice." Some developers, however, question the social merit of these reformed controls. Does society benefit from these new 5 7 flexible controls? In other words, are the social costs less under these new, reformed land use controls? The benefits of Increased f l e x i b i l i t y and efficiency in supplementing municipal tax revenues are questioned in light of the costs of such new controls. These costs are 12 referred to by others as society's "costs of planning." These costs specifically refer to the time i t takes to conclude pre-contract negotiations and the time i t takes to get municipal approvals. These time elements can delay a well-conceived project many months. Siegan summarizes this point when he states that land developers must recognize in his negotiations that a l l these controlling devices give the cit y authority over almost a l l aspects of a particular land use except that out of which they can be talked or bargained. The local government, as a result, is now in a position to control elements of con-struction, architecture, and planning concepts over which i t would have no power i f the property were zoned for the use intended. 7 . 3 Motives In discussing the purposes or motives involved in the development of reformed land use controls, we shall examine both "observable" and "non-observable" motives. The observable motives for reformed land use controls were primarily reviewed in the previous chapter, "Why Conven-tional Land Use Controls Changes." 58 The non-observable causes for the changing nature of land use controls refer to those causes which are rarely specified but are none the less important. They are d i f f i c u l t to ascer-tain, but an understanding of them is important to the land developer. If the land developer can "have a f e e l " forifchose non-observable attitudes of localities in terms of land use controls, he w i l l benefit in ^ several respects. If the developer has a reasonable estimate of the attitudes of local governments and their constituencies, he can better prepare his negotia -tions with the municipality for the provisions in the land control device. Similarly, the land developer may be able to assess risks due to local neighborhood opposition to new land development schemes. Cognizance of public attitudes and 14 dispositions is imperative for successful project development. Observable motives for the move to reformed land use controls relate primarily to the fears of the undesirable side effects and chain reactions resulting from conventional land use controls, fears of inadequate municipal taxing revenues, and perhaps fears of overpopulation. In 1972, over 3 million acres of land were converted to "human" uses within the continental United States. "Human" uses include such Items as urban spread, vacation land development, and the construction of highways and open pit mines. Time magazine reports that citizens have f i n a l l y rebelled against the growing despoliation of the countryside, and the social and economic i l l s that i t creates. "They have launched what amounts to an inchoate, 59 national crusade to get better ways of using land no matter what the cost." 1^ Because increasing populations have exerted a greater demand upon a f ixed supply of usuable urban land, says Paul Gross, citizens have emerged in an 16 almost patriotic sense to protect their local amenities. Another popular news magazine, U.S. News and World Report, relates the development of a "strong, often relentless opposi-tion to any kind of growth - whether i t be new houses, new industry or even new people."17 These "non-observable" motives for continuing control of the land development process are apparently deeply rooted in the heart of voting residents. These motives may be based on fear - fear of the market, fear of income loss and fear of profits, speculators and land developers. Land use legis-lation, such as the Land Use Contract example, is created by politicians who represent the sentiments of their local citizens. Growing public awareness of the problems existing within the land market forces local governments to enact laws to control what are considered undesirable a c t i v i t i e s . These laws are an extension i t seems of the basic fear of an uncontrolled market. Land use controls protract an existing system of land uses much longer than the price 18 mechanism would have allowed. Everywhere in society, we see an effort to guard against "the bite of the market." Control has made what might otherwise have been an uneconomic activity (of traditional single-family homeownership) supportable for 60 many people by treating them kindly. x^ 7-S4 Wealth Distributions A second general area of "non-observable" motives behind the development of reformed land use controls involves the distribution and protection of wealth. Let us assume, for the sake of simplicity, that any given population is composed of three socio-economic groups: upper, middle and lower. Further, with the United States In mind, let us assume that the upper class may be characterized as conservative and 20 the lower class as l i b e r a l . With these assumptions in mind, i t seems appropriate to explore some of the motives and means of class differences. Paul Ylirsaker, a professor of urban studies at Harvard, suggests in a recent Time article that i t used to be the liberals were for land control and the conservatives against i t . He states now the situation has reversed i t s e l f causing almost a conspiracy to use land control against the poor and the blacks ( l i b e r a l s ) . 2 1 Since poor people, minorities and new home buyers are seldom represented on city councils, we find that land developers are perhaps the only group representing the rights of these people to equal housing opportunities. Those groups which a re able to organize themselves (in most cases, the privileged white), "can, in fact, build a wall around their cultural standards and social class mores by u t i l i z i n g economic barriers of building costs, occupancy standards, 61 •rfcax rates and commuting costs." ^ It appears i f our local governments accelerate control of land development, we may-end up improving the environment for thosejpeople in the 23 high income brackets. Some social planners and observers agree that the non-observable motives behind a l l the desires to reform land use controls, "however deeply hidden", are to keep the unwanted low income people out of the "community."24 Responsibility for the growth of reformed land use controls does not l i e entirely within the apparent discrimin-ation against lower socio-economic classes and newcomers to a community. There have been few, i f any, complaints about these "excessively" exclusive land controls from anyone' oth^r than 25 land developers. The fact i s , however, that those groups being excluded because of Increasing costs of housing, not only lack internal representation at the local government level, but also tend to feel that they are beeing benefited by the newer, more restrictive controls. The ways in which lower socio-economic groups apparently feel they are being benefited by the new controls are based upon their ideas of the wealth distribution within their society. Their argument - an argument less well-organized than the arguments by upper class groups to protect the status quo - stems from the idea of expanding populations within a fixed urban area. The increasing demands for urban space by an expanding populationsareiteepresented in economic terms as increasing land rents. In other words, with the increasing pressures of 62 population growth, land and property rents are enhanced. With a given amount of wealth in an area, increasing land values and rents can only reduce real wages. The people generally excluded by land controls, states K.H. Parsons, believe that these controls only serve to eliminate profits from land developers and land owners. In this sense, those excluded feel that the real incomes of their labor are being protected. Consequently, i t is believed that government, in developing reforms within the land market, are essentially 26 redistributing incomes toward labor and away from rents. 7.5 Summary Social attitudes are changing and laws are being constructed as reflections of these changes. Profits, big business and environmental despoliation are now objects of publicfcriticism and reform. Land developers, to be sure, have not escaped this criticism. M. C. Paulson in his book The Great Land Hustle (1972) heavily c r i t i c i s e s major land developers for "premature subdivision" (leap frog development) and urban spread. 2 7 The criticism is s t i f f , but is is hardly imaginable that one group of businessmen in society can be blamed for urban spread. Changing social attitudes have fostered reform in the land development industry. The primary reasons for this movement l i e within the framework of our p o l i t i c a l system. As long as the system accepts change, society w i l l have to adjust to failures of past land use controls, accept socio-economic power struggles, and accept the profit motives of business entities (and individuals ). CHAPTER 7 FOOTNOTES 1 Regan, op c i t , p.275. 2 Jacoby, op c i t , p.26. 3 Makielskl, op c i t , p.18. 4 Sussna, op c i t , p.20. Sussna, op c i t , p.20. 5 Land Use Contracts permits detail planning on si t e , versus zoning which is more generally applied. A problem appears to exist when a marginal or small development project must bear the f u l l servicing costs (streets surrounding the site or sewer trunk lines, for example) while a much larger project contributes proportionately IA-less toward the payment of public services. Interview with W. T. Lane, Chairman of the British Columbia Land Commission, Vancouver, (December 3, 1973). In the District of Surrey, B. C., developers are required not only to provide on-site and off-site public services (waters, sewers, streets, schools and parks) but ariet; required in most cases to donate a per suite or per unit "Impost Charge" (ranging from $1,300 to $2,300 per suite). Interviews with Alvin Poettcker, Laing Development Vancouver (December 3, 1973) and Paul Preston, Tonnison Development, Burnaby (December 5, 1973) See Section 8 (A), 15, 16 (C) - concerning performance and guarantee bond provisions. See Land Use Contract, The District of Surrey, B. C. A. Poet taker:/ feels that one of the f i r s t results of the wide use of Land Use Contracts was to "scare away" developers who were not sure of the consequences and cost required under such a device. 11 Siegan, op c i t , p.154. 65 The social costs may be even more dear in light of local governments non-accountability of theae social costs of planning. For example, i f a local planner wants pink windows in a particular project under a Land Use Contract, society does not hold him accountable for such t r i v i a l nonsense. See S.W. Hamilton, "Public Land Banking. . .," op c i t , p.11,18,19. Siegan, op c i t , p.155. One author suggests that builders are willing to pay a premium for land which w i l l not arouse local resistance for its development. See Marshal Kaplan, op c i t , p.87. "The New American Land Rush," Time (Oct. 1, 1973), p.72. ". . .teno matter what the cost. . ." is an adequate estimate of that attitude. It is however, unreas-onable to assume that society w i l l pay whatever the cost for planning in terms of the benefit received. Paul Gross, "Changing the Ground Rules in the Raw Land Game,8 Real Estate Review (Winter, 1972), p.30. "Drive to Curb Growth in the U. S. - Its Impact," op c i t , p.30. White, op c i t , p.3. Hardin, op c i t , p. 265. This recalls the story of the man who chose to cut off his dog's t a i l an inch at a time because he could not bear to do It a l l at once. This ddist'inction has been noted to be opposite in Canada. "The New American Land Rush," op c i t , p.72. John W. Dyckman, "Control of Land Development and Urbanization in California," Housing in California (San Francisco, Governor's Advisory Commission), p.310. Control with these exclusionary and cost effects can be justified from a social standpoint, i t seems, only i f incomes and wealth are redistributed downward by an equal amount. Parsons, op cit? p.303. 66 25 Those developers who either were unable to attract additional capital to finance the additional costs required under most reformed land use devices; or were unable to "pass off" those additional costs onto the maximum bid proce for raw land (caught speculating); or were unable to pass the new costs off onto the price of the finished product because of weak market conditions. 26 Parsons, op c i t , p.303, This view is false because the additional costs inherent in reformed land use controls are borne by the comsumer in the long run. 27 M. 0. Paulson, The Great Land Hustle (Chicago: H. Regnery Co., 1972), Chp.l. 67 CHAPTER 8 CONCLUSIONS North America appears recently to have passed a mile-stone in land use control. 1 By supporting a program of reformed land use controls, urban society has elected to impose upon an already naturally constrained market of land development additional controls in the name of public health, safety and welfare. By doing so, i t has essentially deprived the price-allocation market economy of the opportunity to alleviate some of the problems of urban l i f e . Probably the greatest defender of the market mechanism, P. A. Hayek, says: W We must not overlook the fact that the market has, on the whole, guided the evolution of the c i t y more successfully, though imperfectly, than is commonly realized and that most of the proposals to improve upon this, not by making It work better, but by superimposing a system of central direction, show l i t t l e awareness of what such a system would have to accomplish even to equal the market In effec tIvenes s. Hayek's defense of the market economy can be substantiated by the argument that production is not automatic. Proponents of market controls, such as land use controls, often act as though the problems of production have a l l been solved. Perhaps they feel that i f profits were removed, prices would f a l l and supply would be sufficient. Profits, rents, prices and interest rates are set by consumer demand, and when they 68 are controlled, It is the consumer who finds himself at the end of the line of restricted a c t i v i t i e s . Production is distorted, in a sense, because the outcome is inferior so far as net social product is concerned, to what was achieved under less controlled conditions. By imposing more reformed land use controls, we have precluded the opportunity to allow the market mechanism to function. With properly enforced anti-trust and restraint-of-trade legislation, the market mechanism may have been our only viable social alternative. 8.1 Re-evalution? In Houston, Texas, the market has been permitted to generate land uses. The only controls on land are restrict-ive covenants initiated and upheld by Individuals within their neighborhoods. Siegan asserts that the effect on the land market in Houston has been threefold. F i r s t , production by a l l land developers is at a maximum. Second, :as the supply of real property has increased without government controls, prices to consumers have decreased (or risen less than they other-wise would have). Third, as competition among land developers st i f f e n , some less efficient producers are forced from the. market. The immediate effect w i l l be prices increases; but as profits mount, incentives for market entry w i l l become attractive. With increasing market "re-entry" prices w i l l 69 be competed downward.** These results may suggest that land development, without government control, may indeed produce more positive social new benefits than development constrained by controls. Some authorities on land control have expressed the opinion that conventional land use controls should have been replaced, not by more reformed land use controls, but rather by fewer controls. In the ease of the city of Houston, Siegan calls for an all-out abandonment of land controls. Others c a l l for the establishment of a common market of land, where traditional land use controls would be scrapped in a 5 series of evolutionary steps. If, as suggested, the government gradually or " a l l at once" abandoned its land market controls i t should be responsible to the market by providing information (education and price news services) and using inducements, and incentives (tax credits and exemptions, loans, guarantees, subsidies, etc.) to direct the market Into deficient market areas. Contrary to these views, local governments have instead enacted more reformed land use controls in the belief that for reasons generally unstated, these new controls are^better or more efficient than conventional land use controls. It is d i f f i c u l t to see how these new reformed land use controls can be more efficient than their predecessors when both are "cut from the same cloth"? The advent of reformed land use controls represents a classic example of the triumph of hope over 70 experience. We seem to have entered a phase of social development in which the dogma persists that i f zoning doesn't work, try more of ItJ Doebele adds that zoning and a l l the police powers based on controls, no matter how refined with "new gadgets and accessories," cannot come to grips with these problems (municipal fragmentation and bankruptcy, exclusionary nature of zoning and minority pressures); and indeed, sometimes operate to aggravate rather than assuage them. j Land use controls cannot help to alleviate the "serious" problems of our modern c i t i e s : ignorance, poverty and social injustice. Rather, as Banfield admits, land control laws and similar public programs (urban renewal and transportation) serve only to enhance the personal comfort, convenience, ¥ business advantage and amenities for the privileged groups within an urban area.' It becomes clear that our politico-socio-economic systems in North Amerlcancondone the doctrine of laissez-faire only in so far as the passage of laws controlling land use is concerned. Siegan concludes that the proposals for major reform at the local level are analogous to buying expensive new tires for a racing car instead of replacing its faulty engine. "The objectives and motivations at the local levels of government are inconsistant with the needs and requirements of society and any meaningful reform requires removal of their zoning powers. 71 8.2 Effects Reformed land use controls, such as the Land Use Contract, increase the costs of development. These additional costs may be viewed either as additional business expenses or as a tax on the economic activity in the creation of real estate. Costs development are increased because land developers are required to perform many new functions. Not only must the land developer assume the responsi-b i l i t y of providing public services, he must confront a lengthy and complex process of approvals in the course of development. The approval process in many areas is uni-directional and " a l l checks and no balances."^ Delays occasioned by checking decisions of this nature have added special dimensions to cost. In normal business operations, a wrong decision may often be rectified at l i t t l e cost as soon as the error becomes evident. However, whatever the social benefit ( i f any) the private cost of a delayed decision - of the men and capital that stand idle awaiting the decision - cannot be retrieved. 8.3 The Impacts of Reformed Land Use Controls on the Land  Developer The increasing costs of development w i l l be borne by the developer. In the short run, however, under a stable market, the increasing costs of development w i l l produce lower bid p prices for raw land. If the developer is holding a large stock of raw land and the costs of development increase during 72 this holding period, then developer's profits w i l l suffer by an amount equal to the increased development costs. As the market for finished products advances with increases in populations and incomes, prices of the finished product w i l l increase. Therefore, in the long run, a l l increases in development costs w i l l be borne by the ultimate consumer ,'in the form of Increased prices. It appears that firms who are either "caught" speculat-ing (holding land for profit but are instead fa;ced by increasing development costs) or unable^to raise additional capital to finance the new development requirements w i l l be unable to operate within such a constrained market. Signi-ficant barriers to market entry have been, in effect, errected by the growth of development controls. The condition of the market w i l l be of an oligopolistic nature. Some charge that such a market w i l l produce undesirable social products (tacit or explicit attempts by those oligopolistic firms to agree on a price for a standard unit of shelter). Developers capable of market entry and operation w i l l be able to charge higher prices, offer poorer services or avoid completely the undertaking of improvements or r e h a b i l i t a t i o n . 1 0 And so, i t appears when competition is eliminated, the undesirable effects which ensue may well be worse than the problems which existed before controls were reformed. 73 Land developers must establish their position in light of recent trends towards more land use controls. The f i r s t and easiest alternative available Is to exit the land develop-ment process, either temporarily or permanently. Secondly, some w i l l remain in the land development business as long as possible and w i l l resist to the best of their a b i l i t y the onset of more land use controls. Controls can be resisted by legislative lobbying; although true change can only be brought about i f citizens understand the social costs and consequences and thereby desire change. Finally, some land developers w i l l simply enjoy their oligopolistic powers and thereby support legislation for stricter land use control. 74 CHAPTER 8 FOOTNOTES 1 The trends toward more reformed land use controls a appear to be strong not only in Bri t i s h Columbia but in the rest of the states and provinces. See Paul Gross, "Changing the Ground Rules in the Raw Land Game," Real  Estate Review (Winter, 1972). 2 F. A. Hayek, The Constitution of Liberty (Chicago: Universlty of Chicago Press; 1960), p.342. 3 As competition decreases, some firms w i l l attain the power to f i x prices and output and thereby enhance profits. 4 Siegan, op c i t , p.136. 5 Doebele, op c i t , p.8,9. 6 Doebele, op c i t , p.8. 7 E. C. Banfield, The Unheavenly City: The Nature of our Urban Crisis (Boston: L i t t l e , Brown and Co., 1968), p.10,11. 8 Siegan, op c i t , p.152,158. 9 Which raises the question of local government's "non-accountability" to the public as far as these "costs of planning" are concerned. 10 Siegan, op c i t , p.135. 75 BIBLIOGRAPHY Banfield, E. C , The Unheavenly City: The Nature and Future of an Urban Crisis, L i t t l e , Brown and Co., Boston, 1968. Batten, C. R., "Boulder's Muddle," The Gazette Telegraph, Colorado Springs, Colo., June 25, 1973. Brennan, Michael J., Theory of Economic Statics, Prentice-Hall, Inc., Englewood C l i f f s , N.Y., 2nd ed.,1970. "Bridgeview Report'J* The Columbian. Thurs. Feb. 1973, p.11. Broadway, Frank, State Intervention in British Industry 1964-1968, Kaye and Ward, London. 1969. ^Buying a Home? What You Face Now," U.S. News  and World Report, Jan. 1, 1973, p.24-25. Coase, R.H., "The Problem of Social Cost," The Journal of Law and Economics, ed. Claron Director. University of Chicago Law School, Vol.111. 1960. "Crowding of Houses a "must"," Canadian Press, Vancouver Province, October 15, 1973. de Leeuw, Frank, "The Housing Allowance Approach," The Urban Institute, Washington, D.C. Draft 2100-3,1971. Derkowski, A., "Residential Land Development in Ontaro," Urban Development Institute, Nov. 1972. Doxiadis, C.A., Urban Renewal and the American  City,, National Association of Housing and Redevelopment Offi c i a l s , Chicago, 1966. "Drive to Curb Growth in the U.S. - Its Impact," U.S. News and World Report, Jan. 15,1973. Dyckman, John W,, "Control of Land Development and Urbanization i n California," Housing in California, Governor's Advisory.Commission on Housing Problems, San Francisco, 1973. 76 Enzer, Selwyn., Some Housing Prospects for Residential Housing by 1985, Institute for the Future, Middletown, Conn., Jan. 1971, Report R-13. 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Hamilton, S.W,, "Public Land Banking - Real or Illusionary Benefits, "Research Report Prepared for the Urban Development Institute of Ontario, Oct., 1973. Hanford, Lloyd D., CPM, "Environmental Life or Death," Journal of Property Management, March-April 1970. Harris, Senator Fred, and John Lindsay, The State of the Cities, Report of the Commission on Cities in the 1979's, Praeger Publishers, New York City, 1972. 77 Hayek, P. A., The Constitution of Liberty, University of Chicago Press, 1960. Hayek, P. A., The Road to Surfdom, University of Chicago Press, Chicago, 1944. "'Home, Sweet Home' - Price is Going Out of Sight," U.S. News and World Report. July 30, 1973. "Home Building Boom Hits Snags in Suburbs," U.S. News and World Report. Oct. 16, 1972. Hirschman, Albert 0., Exit, Voice and Loyalty, Harvard University Press, Cambridge, Mass, 1970. Inner City Housing and Private Enterprise, ed. 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F. f Principles of Urban Development, University of British Columbia, draft manuscript, 1972. "Staff Comments on the Land Commission B i l l , " Greater Vancouver Regional District Planning Committee, Feb. 28, 1973 Stupich, David D., Hon. Minister of Agriculture, B i l l Number 42, The "Land Commission Act/ 1 The Province of British Columbia, 1973. Sussna, Stephen, Land Use Control - More Effective  Approaches, Research Monograph 17, The Urban Land Institute, Washington, D. C. 1970 Sverdlik, Jerome S., "How to Buy Raw Land," Real Estate  Review, Winter, 1972. "Ten Problems, The Building Industry Must Face up to," Better Homes and Gardens, Sept. 1969. 80 "The Mayors' Story: Money S t i l l No. 1 Headache," U. News & World Report, July 2, 1973. " The New American Land Rush," Special Section Time. Oct. 1,1973. Urban Land Use Policy: The Central City, ed. Richard B. Andrews, The Free Press, New York City, 1972. Vilander, Kathleen, "Outer City: Suburbia Seeks New Solutions," Real Estate Review. Winter, 1972 Ways, Max., "Land: The Boom that Really Hurts," Fortune. July 1973. "What Can Be Done to Save Big Cities," Interview with James T. Lynn, Secretary of H.U.D., U. S, News and World Report. June 18, 1973 White, Phi l l i p H., "Urban Redevelopment Policies," The Chartered Surveyors Annual Conference, London, 1961. "Will the Housing Boom Fizzle," The International  Operating Engineer. A.F.L. -C.I.O., A p r n 1973. Wynkdop, Steve, "Vail Area Facing Urbanized Future," Denver Post Staff Report, July 15, 1973 81 APPENDIX CHAPTER 6 The "chain reaction", however, may go beyond the type of reasoning advanced in chapter six. To achieve uniformity of assessment in the Province of British Columbia, the government passed in 1953 the "Assessment Equilization Act," which came into effect in 1955. The purpose of this Met was to establish a relationship between assessed value and actual value (later defined as market value). The latest ammendment is the rule of the 5 and 10 percent increase limit for school assessment purpose. Broadly speaking, the total assessed value of a l l property In a school d i s t r i c t should not exceed by more than 5 percent the total assessed value of the previous year in the school d i s t r i c t . Each property of an individual owner in a school d i s t r i c t should not exceed by more than 10 percent the assessed value of the previous year (except for instances of land improvement). These 5 and 10 percent rates apply only to the school assessment rules and not to the general tax provisions. What we have here-appears to be a unique taxing situation which again emphasizes the discriminatory nature of land controls. Under strong market conditions where the market values of exist-ing stocks increase, let us assume, more than 10 percent per year, this "5 and 10 percent" rule appears to generate In-equities in the share of assessments between new and existing 82 stocks. New Houses are priced, sold and assessed at the current market rate, while existing structures are pro-tected/from assessment increases over 5 and 10 percent. This inequity w i l l remain as long as the demand for exist-ing stocks (which sets the price, so to speak, for new stocks) increase faster than 10 percent per year. 


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