RE 5002: Legal and Institutional

Framework
Real Estate Development

Seminar 3: Planning and

Markets
M.Sc (Real Estate) 2005-2006
Lecturer: Dr Malone-Lee Lai Choo

Historical Context and Background

In Europe and the UK, the financial crisis of the
late 1960s, the oil crisis of 1973 and the ensuing
recession - all exposed another underlying
weakness of the planning system - its
dependence on economic growth.
The development plan system has all along been
based essentially on state regulation of private
sector development.
Where the state undertook development, this
was mainly the provision of physical and social
infrastructure (roads, schools, etc), or else it was
in partnership with the private sector.
Consequently, when economic crisis pushed the
private sector into recession, there was little left
to plan for.
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The rise of the anti-planning

movement
by the end of the 1970s, conventional planning, the use of plans
and regulations to guide the use of land, seemed to be more and
more discredited, as planning turned from regulating urban growth,
to encouraging it, on the premise that planning must facilitate the
creation of wealth in the cities.
This anti-planning movement which started in the United States,
was to be followed by Britain.
By the late 1970s, in all the great British cities, large tracts of vacant
or semi-vacant land, ruins of derelict industrial or warehouse
buildings were found all over Britain.
The main concern then was no longer for the traditional control
and guidance of growth (since 1947) but for the encouragement of
growth-promoting activities by almost any means.

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Malone-Lee Lai Choo

Malone-Lee Lai Choo

Leveraging the Private Sector

The parallel development in many
parts of the United States was that
planning was attacked as having
distorted and inhibited the
operation of market forces, forcing
industrialists to take sub-optimal
location decisions and even
throttling enterpreneurship.
Thus, many urban revitalisation
projects took place based on a new
kind of creative partnership
between the city government and
the private sector - with support
from central government in terms
of public support and joint funding
(the new role of public sector
investment in speculative
enterprise).

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Malone-Lee Lai Choo

Rousification of American Cities

London Docklands

Urban revitalisation: the American buzzword of

the 1980s a new kind of creative partnership
between the city government and the private
sector.
James Rouse, Baltimore developer - large
schemes (Baltimore : 250 acres) mixed use, big
federal commitment (public sector speculative
investment enterprise, coupled with federal
grants, and public-private co-operation)
Examples: Boston Waterfront
Inner Harbour of Baltimore

Large tract 8.5 sq miles

Planning as Property
Development
The task of planning was to
facilitate the most rapid
feasible recycling of derelict
urban industrial or
commercial land to higher and
better uses.
The LDDC took unprecedented
powers away from local
authorities, and used them to
welcome developers with
open aream

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Malone-Lee Lai Choo

The concept was of

leveraging the private
sector means using
relatively modest public
funds to generate a
much larger amount of
private investment.
Mainly in the form of
large developments
based on the relatively
new concept of adaptive
re-use, i.e., the
rehabilitation and
recycling of old physical
structures to new uses..

In a mere 5 years, it had

used 279 million of public
funds to attract nearly six
times that amount in private
investment; attracted 400
new companies and 8000
new jobs; provided sites for
nearly 4000 new homes, with
10,000 under construction or
planned; and had begun
work on a major new light
rail system.

Malone-Lee Lai Choo

Planning as property development

In the UK

Planning became almost synonymous with

property development, the task being to
facilitate the most rapid feasible recycling
of derelict urban industrial or commercial
land to higher and better uses.
The style was basically anti-long-term
strategic planning, anti-almost-any
published plan at all; freewheeling,
freebooting; ..concerned only to
exploit opportunities as they arose. . . it
was not planning as anyone had ever
understood it for the previous forty years.

In various parts of Britain, the concept of

enterprise zones was introduced from
Enterprise Zone:
1980, based on fairly shameless free
Zones with
enterprise and bureaucracy being kept to
especially
the absolute minimum
favourable tax
concessions and

a simplified set of
Indeed, it has been said that since 1979,
physical
planning
the Thatcher government have all but
procedures.
abolished planning, with the relaxation of
many controls, the introduction of
enterprise zones and simplified planning
zones, the transfer of powers to urban
development corporations and the greater
stress on market criteria in development
control decisions.

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Malone-Lee Lai Choo

Revival of Privatism
Privatism is defined as a tradition that
encourages a reliance on the private sector
as the principal agent of urban changes,
stressing on the social and economic
importance of private initiative and
competition, and legitimising the public
consequences of private action, with the
fulfilment of both personal and community
well-being being evaluated largely in terms
of the fulfilment of private aspirations and
the achievements of private institutions
(Barnekov 1988)

4 new policy dimensions for cities

1.
2.
3.
4.

in virtually all areas domestic activity, priority was to be

given to economic considerations and the requirements
for market efficiency;
Wherever possible, private markets were to be relied upon
in preference to public policies in making allocative social
choices;
Where public intervention was necessary, it was to be
designed to augment market processes and to elicit the
greatest possible private sector participation;
When direct public programmes were undertaken, they
were to be organised in a manner that corresponded to
the administrative, financial, and evaluative methods of
the private sector.

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The New Mandate for Cities

Malone-Lee Lai Choo

The Remaking of Planning not the

death of planning

Establish economic development as the central

focus of local attention and as the basic function
of local institutions, stimulate new public-private
sector alliances, and abstain from public actions
which distort the efficient operation of the
marketplace or constrain the locational choices,
investment decisions, and operational plans of
firms
The prosperity of cities, it was propositioned,
depends on effective competition for industry,
jobs and investments in a dynamic national
economy that is shaped largely by the spatial and
sectional needs of private enterprise.

By the end of the 1980s, it would appear that

urban planning as originally conceived as a
government-led activity to guide land use and
development has to be conceptually remade given
the political and economic climate of the times.
The crisis in planning and the context in which it
was operating in the 1970s has resulted
effectively in the remaking of planning involving
a re-orientation of its goals and purposes on new
approaches which were more in-tuned to the
market and the interests of developers (Brindley
et al., 1989)

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Malone-Lee Lai Choo

Malone-Lee Lai Choo

A New Typology Of Planning Styles

Perceived Nature of Urban
Problems

Attitude of Market Processes

Market-Critical

Market-Led

Buoyant Area:

Regulative Planning

Trend Planning

Marginal Area:

Popular Planning

Leverage Planning

Derelict Area:

Public-Investment
Planning

Private-Management
Planning

Redressing imbalances
and inequalities created
by the market

Minor Problems and Buoyant

Market
Pockets of urban problems and
potential market interest

Comprehensive urban problems

and depressed market

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Correcting
inefficiencies while
supporting market
processes

Malone-Lee Lai Choo

Three types of areas.

Based on the typology, in more prosperous areas, planning
of a negative kind is considered most appropriate, and
planning styles are concerned with reacting to private
development initiatives, not with actively encouraging
them, through regulative and trend planning.
In marginal areas where a greater degree of positive
planning which stimulates change and growth and facilitate
restructuring of the local market, either popular planning is
effected through the community or leverage planning is
used using the private sector as the main agency for
change.
In derelict areas, there is shift toward a totally planned
local environment, either through public-investment
initiatives or on the other extreme, relying totally on private
sector efforts.
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Malone-Lee Lai Choo

The New Approach

Currently, the new approach combines deference
to market forces with a package of limited
planning controls and public subsidy.
It focuses on areas where development is likely to
be most profitable, and leaves less commercial
locations to the rhetoric of the moral planning
movement which continued to rely on
paternalism and community activism to achieve
urban changes.

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Malone-Lee Lai Choo

Market-Led vs Market-Critical
Approaches
Market-led approaches are those that take a positive
view of the market, and the market mechanism
determines where and when development should
occur, the main actors being the private sector.
Where market outcomes are judged to be inefficient,
additional planning powers are brought into play to
correct inefficiencies.
By contrast, market-critical approaches take a
positive role to redress the inequalities and
imbalances of the market and to make good its
omissions by measures to increase the access of the
disadvantaged to housing, health, recreation and
community activity, in the pursuit of the more
generally defined goals of community welfare.
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Malone-Lee Lai Choo

The trends then.

Given prevailing political
climate, it has been
suggested that market-led
styles will increasingly
dominate planning policy in
the 1990s in the UK. Eg.
trends toward more flexible
approaches such as the use
of Simplified Planning Zones

and new Use Classes Order

(e.g. the new B1 use
classification of mixed
buildings allow anything
from 100% office
development to 100% light
industry.
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Simplified Planning Zones:

Concept to promote a free
market environment in
designated urban areas by
reducing taxes and relaxing or
eliminating regulations on
business activity. The concept
epitomise a governments faith
that unfettered entrepreneurial
capitalism would eliminate
urban problems, produce jobs
and internationally competitive
products, and create
harmonious and industrious
communities.

Malone-Lee Lai Choo

Planning vs Markets an
institutional analysis approach
Implies that planning and markets are
separate, opposed and mutually
exclusive
Planning
Private enterprise
Government
Hybrid forms
intervention, state
Unplanned market
regulation and action

Institutional economics or institutional

analysis has modified the simplistic
assumptions of classic economics
Planning is not limited to public sector,
nor do markets exclude planning
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Malone-Lee Lai Choo

Transaction Cost Theory

Institutional Analysis
Rather than juxtapositioning planning and
markets, both are subsumed under the
more overarching concept of governance.
The question is no longer to plan or not to
plan but What is the most effective form
(or mix of forms) of governance?
This should be raised in the context of a
policy issues or problem

The basic unit of analysis is the transaction: any exchange

between parties, from simple exchanges of goods and
services for money, to other transactions involving the
promise of action of value by one party in exchange for
money, goods, services or other valued resources, or for
promise of reciprocal action of economic or other value.
In Institutional Analysis, TCT applies the principle of
remediability, ie. it compares alternative feasible form of
governance, rather than referring to some hypothetical
idea.
TCT prescribes discriminating alignment: matching the
transactions involved and their specific attributes, with
alternative governance structures, to see which offers the
lowest transaction costs for all participating actors.
The most appropriate form (or mix) of governance is the
one that minimises all concerned parties transaction costs
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A Transaction Cost Theory of

Planning
Public land use planning and development control
can be defined as government delineation and
/or restrictions of rights over land with certain
spatial confines
The assignment of and control over land uses will
generally reduce transaction costs, and can create
or enlarge markets, but recognising planning and
development control as part of the markets
institutional environment still leaves the question
open: Why public? is it not possible to
substitute voluntary compliance and enforcement
for parts or all of the regulatory institutions of
governmental intervention in the land
development process?
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Malone-Lee Lai Choo

Forms of
Governance:

Malone-Lee Lai Choo

Third Party Governance

(Adminstrative Support)

Bilateral Governance (market support)

Agent:

Public/Govt

Private
(Delegated)

Public/Govt

Mixed
(public/
Private)

Private
(Firms/Corporations

Planning

Statutory Public
Planning (govt
agencies,
bureaus)

Professional
consultant
firms

Public developerplanner
(government/public
agencies)
Indicative
Planning: (public
planning &/or
delegated
consultants)
Infrastructure,
public
facilities/open
space, indicative
designation of
private land
uses/intensities

PublicPrivate
Partnership

Developer-initiated
planning
Informal Planning

Development
Control

Regulatory:
(government/
public agency)
Zoning, building
regulations, other
(environmental,
harzard, special
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area designation,
etc)

Contract zoning:
Plan as a condition
of contract of lease
or sale between
public landowner
and developer

Contractual: CCRs
between
developer/planning agent
and subsequent property
owners

Malone-Lee Lai Choo

Third Party Governance

Bilateral Governance

The question of make (in-house

provision of professional planning services
by a government agency) or buy would
be addressed on a case specific basis.
Buy can include privatising forward
planning activities through procurement
from consultants, and monitored
delegation of governmental regulatory and
enforcement activities such as plan review
and building inspection to private service
providers.

Planning in bilateral governance involves

deliberate intervention in the land
development process.
This can be done directly by government
and its agencies, or through public-private
partnerships, which have become popular
development instruments over the last
two decades.
It is, of course, also extensively done in
the market itself, by large-scale
landowner-developers

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Malone-Lee Lai Choo

Malone-Lee Lai Choo

Indicative Planning

Contractual Development Control

Indicative planning is a form of bilateral governance where

government does not intervene directly but provides
indirect market support.
Indicative plans show public investments (infrastructure,
strategic facilities and public amenities) and indicate
desired patterns of area development.
An indicative plan needs private investors confidence in
governments commitment to implement its own decisions,
and in the quality of its data.
Its success also depends on how it incorporates market-led
development that would occur in any case.
To the degree that it is normative, prescribing development
contrary to expected trends, an indicative plan must be
supported by a political community of interests or be
supplemented by other implementation tools

The bilateral governance alternative to

regulation is contractual development
control, which takes two forms:
When the state is the landowner, contract
zoning ensures implementation that
conforms to public plans. Examples
include Hong Kongs long leasing of Crown
Land, The Netherlands Municipally
acquired and prepared developments, and
Israels management of public lands.

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Developer-Sponsored Planning

Malone-Lee Lai Choo

Conclusion

On large privately owned tracts, developersponsored planning can link with voluntary
development control in the form of contractual
convenants and restrictions (CCRs).
Though these are popular in North America, they
are rarer in Europe, and are almost unknown
elsewhere.
Evaluations of their success are mixed and raise
many contextual considerations, which are
undoubtedly relevant to their transferability.

The institutional analysis of the land

development and real-estate sector
illustrates the fallacy of juxtaposing
planning and the market
It is only in third-party governance that
we find land use planning outside and
complementary to the market. Here
planning and regulatory development
control are conceived as sovereign tasks,
becoming part of the land and property
markets institutional environment.

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The overall analysis reveals alternative forms of

governance.
In bilateral governance, various forms of planning
and development control exist as administrative
and market supports in the market.
Non-statutory planning ranges from public
agencies planning in developer roles, through
public indicative planning and public-private
partnerships, to developer-sponsored planning of
new communities and large-scale tracts.
Development control that is in and by the market
includes contract zoning and contractual
covenants.

Malone-Lee Lai Choo

Discussion 2: En Bloc
Redevelopment in Singapore
Examine the en-bloc sales phenomenon in
Singapore.
Do what extent does this phenomenon
demonstrates that private sector initiative can
bring about urban changes that are in alignment
with planning objectives?
What are the institutional pre-conditions to the
successful initiation, implementation and
conclusion of such efforts at private urban
renewal?

None of the above fits the simplistic

dichotomy of planning and markets

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Malone-Lee Lai Choo

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Malone-Lee Lai Choo