Gavin R. Putland,  BE PhD

Friday, January 06, 2006 (Comment)

Little people vs. littler people

An increase in building height limits in the riverside area of West End was approved by the Brisbane City Council on December 13, and is now awaiting ratification by the State Government.*

Opponents of the increase portrayed the Council's decision as a victory for the big bad developers over the little people. In fact it was a victory for the littler people over the little people, in which the developers took the side of the littler people.

The “little people” are the owners of existing properties in West End and nearby suburbs. The “littler people” are present and future tenants in those suburbs, and potential first-time home buyers. The increase in height limits, by allowing an increase in the local supply of accommodation, will help to contain rents and prices for the benefit of tenants and potential buyers. In contrast, the owners of existing properties stood to gain from a scarcity of accommodation, which would drive up the rental values and resale values of their assets. As it happened, the approved increase in height limits was less than that sought by the developers; had the developers got everything they wanted, the benefit to tenants and potential buyers would have been even greater.

Of course I am not suggesting that the developers were motivated by concern for renters and first home buyers. The developers, quite properly, gave their first allegiance to their shareholders. But in so doing they also advanced the interests of the weaker members (and potential members) of the local community.

It's about property values!

Every place of residence commands a minimum market value by reason of the types of households that it can accommodate and the economic opportunities that it makes available to the occupants. As these opportunities depend on location, this minimum market value may be called the locational value. In any locality, an “affordable” residence is one whose total market value is not much higher than its locational value.

If you are a developer owning land on which you intend to build an apartment block, any increase in the height limit increases the value of your land by increasing the number of units that you can build — that is, by increasing the number of times that you can sell the locational value of a residence on that land. This reasoning applies to any given unit size, or any given mixture of sizes, and consequently to any given percentage of “affordable” units. Admittedly, the increase in the total supply of accommodation in the area, by alleviating scarcity, will tend to reduce the locational value per unit; but because new developments will amount to only a fraction of the total accommodation in the area, the increase in the number of units that you can sell will outweigh the decrease in the locational value of each.

But if you are the owner of existing accommodation in the area, all you get from the increase in height limits is the reduction in the locational value of your accommodation, due to the increase in supply of competing accommodation.

Let the spin begin...

Of course the owners of established properties in West End — not to be confused with the “residents” or the “community” of West End, as they were too often called — could hardly cite the threatened reduction in their property values as an argument against increased height limits; had they done so, they would have simultaneously exposed both their self-interest and their indifference to the interests of renters and potential buyers, and would have lost the propaganda war before it began. So they resorted to the following arguments (each of which I have decoded in terms of property values or, equivalently, scarcity of accommodation):

Argument: There should be no net loss of affordable housing. (Translation: We hope that by offering this statement as an argument against increased height limits, we can make the reader jump to the conclusion that increased height limits would necessarily reduce the supply of affordable accommodation. That conclusion obviously wouldn't stand up to much logical scrutiny. So the method by which we nudge the reader towards that conclusion must be subtle, to avoid triggering skeptical reflexes.)

Argument: 10% of all new developments should comprise affordable housing. (Translation: While we would like the stock of housing in new developments to be as small as possible, we also think developers should be able to make the associated stock of affordable housing ten times smaller.)

Argument: Each approved development should provide 0.4 hectares of nearby parkland per 100 residents. (Translation: The supply of new accommodation, including new “affordable” accommodation, should be limited by the developers' ability to acquire land for public parks, which of course implies the demolition of any existing accommodation on that land. We realize that the difficulty of acquiring the necessary amount of land would be increased by low height limits on the new accommodation: the lower the height limit, the greater the area of land that is occupied by the actual accommodation for a given number of residents, hence the smaller the area that is left over to satisfy the parkland requirement.)

Argument: There's not enough infrastructure, especially public transport, to support the population growth that would follow an increase in height limits. (Translation: The supply of new accommodation, including new “affordable” accommodation, should be limited by the notoriously low level of public investment in infrastructure.)

Argument: The local roads can't handle the traffic that would be generated by an increase in population. (Translation: Of course we're really concerned about supply of housing, but population will do for a proxy. And we're betting that the Council won't multiply the person-carrying capacity of the roads by running more bus services.)

Argument: High-density development should be concentrated around transport corridors. (Translation: As implied by the preceding remark about bus services, we're betting that West End is not about to acquire anything resembling a transport corridor...)

Notice that the NIMBY arguments studiously avoid mentioning two facts. First, for a given population, taller residential buildings occupy less total area on the ground, leaving more space for parkland, shops, schools, bus stops, and whatever else the NIMBYists say they want. Second, if we make the building height limit high enough, we can increase both the supply of accommodation and the space left over for other things!

But the last three “arguments” give cause for hope: If developers can come up with a solution to the infrastructure funding problem, they will partly disarm the NIMBYists by neutralizing the most respectable-sounding arguments against infill development. Better still, the NIMBYists will not want to discredit any such solution, because the provision of infrastructure, of itself, tends to raise local property values for the benefit of the property owners, including the NIMBYists.


* Update: It was rejected, but later revived under the new State Government.

[First published at Relocated (without links) Jul.7, 2009. Reinstated with update, June 27, 2012.]

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