Economic Aspects

• Author: Howard Epstein
• Pages: 467-496

467

CHAPTER 10

ECONOMIC ASPECTS

A. PRELIMINARY1

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

done with the land.2 This is basic, 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 limited 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 the core fact. As

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

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

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

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

airport has 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 the limited supply

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

traditional common law remedies 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 as to when either compensation ought to be paid to

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

Development Association, representing land developers, has tied regu-

lation to diminished housing affordability in the Toronto area:

The Greater Toronto Area housing market is dynamic and compli-

cated, and while many factors contribute to increasing prices, one

pivotal way to improve affordability is for governments to recognize

the effect of their policies on the prices paid by consumers. These

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

Area (GTA), key contributors to the affordability challenge include

land-use and land-supply rules, numerous fees and 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 important.

“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 case that a great deal of the logic of the law is

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 MailReport 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.

fraserinstitute.org/sites/default/f‌iles/impact-of-land-use-regulation-on-housing-

supply-in-canada.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.