Economic Aspects

• Author: Howard Epstein
• Pages: 467-496

467

CH AP TER 10

ECONOMIC ASPECTS

A. PRELIMINARY1

The marketplace value of land is directly t ied to what may legally be

done with the land.2 This is ba sic, though it often plays out in pointed

disputes over expectations. The underlying fact is that land is a com-

modity in limited supply. Especially where humans have gathered in

concentrations of population, the marketplace mechanism of demand

interacts with t he fact of limited supply so as to affect price. In places of

relatively high density, one way, although not the only option available,

to deal with the li mited supply of land is to build upwards — in effect

creating more “land equivalent.” This introduces a measure of ela sticity

to the problem. But for the most part, inelasticity is t he core fact. As

said in the 1973 Ralph Nader’s Study Group Report on Land Use in Cali-

fornia, “L and is a unique resource. Its supply is limited. Once land has

been developed, reconversion to agricultural use i s costly; once a large

lake has been polluted, it may remain dead for decades; once a[n] . . .

airport ha s been constructed, it cannot be moved.”3

1 A standard te xt on the economic aspects of la w is Richard Posner, Economic

Analysis of Law, 8th ed (New York: Aspen, 2011). There is no separate section on

land use, but the re is on “Property,” including expropriat ion and nuisance.

2 Location, mea ning relation to surround ing property, and suitability, mean ing

inherent physic al characteristic s, are also factors that w ill determine land value.

3 Robert C Fellmeth , Politics of La nd: Ralph Nader’s Study Group Rep ort on Land

Use in California (New York: Grossman, 1973) at xv.

LAND-USE PLANNING468

From an economics perspective, facts such as t he limited supply

of land, competing demands for the use of land, and the drawbacks of

traditional common law remedie s such as nuisance, all lend themselves

to support for effective land-use planning. UK P rofessor Malcolm Grant

says, “The primary rationale for any land-use planning control is the

perceived failure of the market to achieve socially acceptable land allo-

cation and development.”4 At the same time, public controls may them-

selves introduce economic changes, such as losses or windfall gains,

raising questions a s to when either compensation ought to be paid to

owners or taxes ought to be imposed. The Building Industry and Land

Development Association, representing la nd developers, has tied regu-

lation to diminished housing affordability in the Toronto area:

The Greater Toronto Area housing market is dyn amic and compli-

cated, and while ma ny factors contribute to increa sing prices, one

pivotal way to improve affordabil ity is for governments to recog nize

the effect of their polic ies on the prices paid by con sumers. These

policies have a huge bear ing on home prices. In the Greater Toronto

Area (GTA), key contrib utors to the affordability ch allenge include

land-use and la nd-supply rules, numerous fees a nd taxes charged at

various levels of govern ment, outdated municipal zoning by-laws and

approval processes, a nd f‌iscal and municipal funding p olicies.5

Additional factors certa inly have impact on affordability, but this focus on

the interaction of government policy with private initiatives is import ant.

“The market” is often discussed as the central mechanism of ration-

ality appropriate to many policy decisions by those convinced of its ef-

f‌icacy. It is certainly the cas e that a great deal of the logic of the law i s

4 Malcolm Grant, Urban Planning Law (London: Sweet & M axwell, 1982) at 16.

5 Bryan Tuckey et al, “What Wil l It Take to Rei n In Toronto and Vancouver Hous -

ing Prices?” The Globe an d Mail Report on Business (19 December 2015) B7. For

an elaboration of t his critical view of gover nment intervention in the m arket,

see Kenneth P Green et a l, The Impact of Land-use Regulat ion on Housing Supply

in Canada (Vancouver: Br itish Columbia Fraser Inst itute, 2016), online: www.

fraser institute.org /sites/def ault/f‌iles /impact-of-la nd-use-regul ation-on-housin g-

supply-in-can ada.pdf. There is a n active debate among policy advocates a s to

the factors releva nt to housing affordability, and the role of l and use regulation

as one of those factor s: see Jennifer Keesmaat & Paul Smet anin, “‘Affordable’

Housing Goes Far B eyond Prices and Interest R ates” The Globe and Mail (10

June 2016) A11; Frank C layton, “To Support Affordable Housing, Look at To-

ronto’s Land-Use Plan ning Regime” The Globe and Mail (22 June 2016) B4; Mark

Milke, “Some Housi ng Factors Are Beyond Control. Our La nd Supply Is Not”

The Globe and Mail (29 June 2016) B6.