For interest, I'll post part of a comment I also posted on Bryan Caplan's blog piece.
One of your points (Caplan lists it as #1) is that high land values might reflect good planning, but G+G have assumed high land values are a symptom of bad planning. They've assumed the conclusion.
The problem with G+G's assumption can be illustrated with a thought experiment.
Suppose some jurisdiction always got their planning rules just right. Suppose the rules changed through time but were totally optimal at each point in time. They were the best set of rules imaginable, always. The rules let lots of people live there and made living there GREAT.
Would people pay a lot to live there or not much at all?
They would pay a lot. Land prices would be high.
Suppose also that buildings lasted quite a while and technologies and preferences changed a bit over time.
Might there be a few over-sized backyards which were privately optimal at the time they were created, but wouldn't be created if the land was vacant today? Of course.
So with the best of all planning rules, land would be expensive, and marginal and average land prices would not be equal.
I can see G+G's argument that marginal and average prices WOULD be equal if houses were continually torn down and rebuilt. But in the real world that destroys valuable capital, so it isn't privately profitable to do it even if the rules allow it.
In the real world, cities have a history, and good planning makes it good to live somewhere which makes land expensive.
One further thought experiment can illustrate this point.
Suppose a jurisdiction was previously "naughty", and now they have average prices exceeding marginal prices.
However now they saw the light and liberalised their planning policies. Now it's laissez-faire.
What is the equilibrating mechanism that would drive average prices down to marginal prices?
Would bits of low value land move? Impossible.
Would houses be torn down and shuffled over a bit? Maybe.
But tearing down houses destroys capital. Lots of houses add value to the land they're on. You lose that when you tear them down. So that won't happen immediately. Which means a marginal vs average differential will remain for a long time.
I suspect part of the developer incentive dispute arises from the heterogeneous cohort of property developers.
Of course it makes sense for large developers who have large land banks on the books in greenfields to lobby for rezonings to boost their land asset values.
However it would also makes sense that small scale developers doing infill jobs would want more rezonings in established areas, because it expands the potential pool of redevelopment sites to choose from. They would in practice be presumably functioning more like construction companies than land banking asset managers.
For interest, I'll post part of a comment I also posted on Bryan Caplan's blog piece.
One of your points (Caplan lists it as #1) is that high land values might reflect good planning, but G+G have assumed high land values are a symptom of bad planning. They've assumed the conclusion.
The problem with G+G's assumption can be illustrated with a thought experiment.
Suppose some jurisdiction always got their planning rules just right. Suppose the rules changed through time but were totally optimal at each point in time. They were the best set of rules imaginable, always. The rules let lots of people live there and made living there GREAT.
Would people pay a lot to live there or not much at all?
They would pay a lot. Land prices would be high.
Suppose also that buildings lasted quite a while and technologies and preferences changed a bit over time.
Might there be a few over-sized backyards which were privately optimal at the time they were created, but wouldn't be created if the land was vacant today? Of course.
So with the best of all planning rules, land would be expensive, and marginal and average land prices would not be equal.
I can see G+G's argument that marginal and average prices WOULD be equal if houses were continually torn down and rebuilt. But in the real world that destroys valuable capital, so it isn't privately profitable to do it even if the rules allow it.
In the real world, cities have a history, and good planning makes it good to live somewhere which makes land expensive.
One further thought experiment can illustrate this point.
Suppose a jurisdiction was previously "naughty", and now they have average prices exceeding marginal prices.
However now they saw the light and liberalised their planning policies. Now it's laissez-faire.
What is the equilibrating mechanism that would drive average prices down to marginal prices?
Would bits of low value land move? Impossible.
Would houses be torn down and shuffled over a bit? Maybe.
But tearing down houses destroys capital. Lots of houses add value to the land they're on. You lose that when you tear them down. So that won't happen immediately. Which means a marginal vs average differential will remain for a long time.
Can you point to a good summary of the Auckland and Minneapolis upzonings?
I suspect part of the developer incentive dispute arises from the heterogeneous cohort of property developers.
Of course it makes sense for large developers who have large land banks on the books in greenfields to lobby for rezonings to boost their land asset values.
However it would also makes sense that small scale developers doing infill jobs would want more rezonings in established areas, because it expands the potential pool of redevelopment sites to choose from. They would in practice be presumably functioning more like construction companies than land banking asset managers.