Tuesday, August 30, 2011

Quantity controls on land use do not make infrastructure cheaper

This is based on a comment I made here.

The problem with zoning solutions for traffic congestion problems is that they do not work. Indeed, they are counterproductive since:

(1) the price effects of quantity controls on land use decrease the incentive to provide infrastructure, since the quantity controls provide easier revenue increases from higher land prices than does increased land values from providing (expensive) infrastructure (the reason to have government provide infrastructure in the first place, since it benefits from increased land values via taxes, unlike a private provider, so captures more of the increased value from the infrastructure so is more likely to provide it);

(2) they increases the cost of providing infrastructure (by making the land more expensive) and increases the resistance to providing infrastructure (by increasing resident activism to protect capital gains from rising land prices; there being a difference between being serviced by a freeway or railroad and being next to it). There is a reason land-controlled California gave us BANANA (build absolutely nothing anywhere near anyone): i.e. NIMBY (not-in-my-backyard) on steroids.

Congestion charges (i.e. road tolls) work better if there are choices between modes of transport as how effective they are depends greatly on how much usage is responsive to price. They can be a useful part of any traffic management system, but are not a substitute for providing appropriate infrastructure. Which is why controls on land use can be so noxious: they actively frustrate appropriate provision of infrastructure.

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