Effects of land use plans on urban development: A property rights approach

Cities are the outcomes of individual spatial decisions that interact with each other (Batty, 2019).To understand how cities evolve, it is fundamental to understand the land development behavior of individual agents and how they interact.The usual difficulties in modeling the land development process are that the process involves so many participants with conflicting perspectives, and that it is almost impossible to characterize the behavior of the participants in a common framework.For example, the process can be described in terms of decision sequences, focusing on how decisions are made in the process, or using a production-based approach, which emphasizes how the final products are established (Gore & Nicholson, 1991).Given the idiosyncratic characteristics of the land development process depicted in different descriptive models, we argue that two elements are pervasive in any type of land development process: information and property rights.A land development process is usually divided into four phases: acquisition, approval, construction, and letting.In the first phase, the developer must locate a parcel of land that might yield profit from the project.Once the land is secured, the process enters the second phase, in which the developer must apply for the necessary permits.Construction commences in the third phase.In the fourth phase, the final output after construction is then sold or leased on the market in order to yield profit for the developer.As argued by Schaeffer and Hopkins (1987), in each phase, planning yielding information is conducted with respect to environments, values, and related decisions.Plans are made and revised as sets of related, contingent decisions based upon the information gathered.As a result, the land development process is a sequential decision making problem, with the decisions made in each phase being contingent on those to be made in the future.To clarify the roles that information and property rights play in the land development process, we focus in this editorial on the first phase: land acquisition.Interpretations of behaviors during the other phases can be made in a similar fashion.Property rights play an important role in the land development process, so it is useful first to define property rights.Property rights are the powers to consume, obtain income from, and alienate the assets over which the owners have the rights (Barzel, 1991).Thus, the property rights over a parcel of land are the powers to use the land to make a profit through cultivating, improving, or exchanging it.According to Barzel, however, property rights are, in reality, impossible to delineate completely in any exchange.Thus, transaction costs arise due to incomplete information about the attributes of assets.For example, in making investment decisions, developers usually acquire information about the locational advantages of parcels of land with a certain amount of cost.This implies that some of the attributes of exchanged goods, unknown to either party involved in the exchange, are left in the public domain, such that the exchanging parties are motivated to capture these attributes during the exchange.This is particularly true in land transactions, regardless of the types of land tenures involved.More specifically, the property rights to a parcel of land can be divided into fixed legal rights and variable economic rights.Whereas fixed legal rights are those legally protected by the government, such as documented ownership of the land, variable economic rights are the attributes of the land affecting its valuation, such as its accessibility via transportation networks.Because the fixed legal property rights usually incur the fixed cost of land acquisition as indicated by land prices, we argue that it is the variable economic property rights that fundamentally affect how and why developers proceed in the land development process.If the economic property rights were not taken into account in the land development process, the developer would be indifferent between two parcels of land with the same amount of fixed legal costs but differing in terms of other attributes.However, this is obviously not the case in reality, regardless of the types of land tenures involved.Consider the case of a developer looking for an appropriate parcel of land for a certain type of development during the first phase of the development process.The attributes of each parcel of land vary depending on its location, land price, geological conditions, access to public facilities and infrastructure, the socioeconomic conditions of the surrounding environment, landscape, amenities, and environmental considerations.No two parcels of land are identical, and the methods used to measure these attributes are expensive