A Greater Australia: Population, policies and governance - CEDA

Section 4.2Promoting better land useThis brings me to the land use aspect of the urban policies pursued in recent years. Asnoted above, these have sought to contain the costs of population growth by promotingwhat is generally referred to as “densification” through a combination of restrictionson the size of the urban area, the availability of land at or on the city fringe relative to thescope for in fill development (such as the construction of units in existing suburbs), andthe extent of charges imposed on developers as contributions to infrastructure costs.While these measures have been implemented in different ways in the various jurisdictions,the common theme has been a desire to reduce the urban sprawl that hasbeen the most pronounced and persistent feature of Australia’s settlement pattern.Moreover, in doing so, State Governments have almost invariably clashed with localcommunities, not merely by imposing zoning and land use decisions that conflict withthose taken by local bodies but also by transferring powers over land use away fromelected local bodies to ministers or to entities appointed by ministers and, in severalstates, by narrowing or even eliminating appeals against planning decisions.While any such statement is obviously a rather grand generalisation, it seems fair tosay that as planners and state governments became more attached to denser development,local communities became increasingly opposed to it. And although localcouncils have often been able to hold up densification, they have rarely been able toprevent it altogether, as state governments typically have ultimate control. In contrast,state governments have had, and exercised, the ability to prevent development on theurban fringe, or failing that, to make locating there less attractive by limiting infrastructureprovision in fringe areas. The result has been a tug of war over land release andzoning that raises obvious questions about efficiency.From an efficiency perspective, there is nothing inherently undesirable about “sprawl”,i.e extensive land settlement. After all, land is a normal good, and hence demand for itwill rise with income. So long as households value extending the urban fringe at morethan its costs, the mere fact that those extensions involve increases in social overheadcapital and in travel times should be neither here nor there.Similar considerations apply to local decisions about housing density: if local residentsprefer a dispersed settlement pattern, with large, uniform, lots, to a denser patterninterspersed with small plots or multi-story dwellings, there is nothing inherently undesirableabout those preferences. Indeed, so long as the local residents, in taking thedecision to impose dispersed settlement (or oppose densification), face both the costsand the benefits to which it will give rise (an assumption to which I shall return), thatdecision is likely to be more efficient than one taken centrally.Nor is it surprising that local residents might become more restrictive of potentiallyundesirable land uses over time. Amenity is not only a superior good but also a localpublic good, and hence its demand should be summed vertically. As the population inan area rises, the value placed on a given level of amenity will rise, but the gain to theindividual undesirable land user (say, a polluter or other generator of negative externalities)from locating in the area may not. As a result, the efficient degree of restrictivenessis likely to increase as population and income rises.But none of this denies that in practice, there may be, and likely are, factors that inducean inefficiently high level of urban dispersion. Four such factors stand out.The first, and surely largest, is the tax system, and notably the tax preference toowner-occupied housing. That preference includes the exemption from income andconsumption taxes of imputed rent; the exemption of owner-occupied housing fromcapital gains tax and from the means and assets tests for social security payments,A Greater Australia: Population, Policies and Governance194