Greening by the Market? Distortions Caused by Fiscal Incentives to Build on Brownfield Land

Abstract

This is a theoretical paper which draws on the existing land-planning and state failure literatures to underpin its key assumptions and to provide an appropriate context. Its main purpose is to consider the connection between capital markets and brownfield development. The paper begins with a summary of the various explanations put forward for why the private sector appears reluctant to build on brownfield, and offers a previously overlooked possible cause: the impact of asymmetric information on credit markets for residential construction. The paper then moves on to its main focus by considering state failures in the allocation of land and the likely impact of information problems on the success of fiscal measures to encourage brownfield development. As a result, a new form of possible state failure in land use intervention is identified that arises out of the link between fiscal policy and the financial market treatment of brownfield sites. This insight adds to the broader category of research that considers state failures in general.

What Determines the Price Elasticity of House Supply? Real Interest Rate Effects and Cyclical Asymmetries

“…For example, Mayo & Sheppard (2001) show how the unpredictability of development controls can lead to land-banking and perverse supply responses to price changes. Pryce (2003) suggests that low elasticities can arise from the combination of development risk and the unintended capital market distortions caused by state intervention and the uncertainties of contamination risk. Barker (2003) establishes a link between low housing supply elasticities and shortages of skilled labour that may explain the apparently lower PES during a boom observed by Pryce (1999).…”

Housing Supply and Suppliers: Are the Microeconomics of Housing Developers Important?

“…The price elasticity of new housing supply, meaning the responsiveness of supply to a change in the price of housing, is relatively low in the UK compared with some other countries -particularly the U.S. Barker (2004) concludes that the price elasticity of new housing supply averages around 0.3 in the UK, though with regional variations. Pryce (2003) finds evidence that elasticities differ between periods of housing market growth and slump (0.58 and 1.03 respectively). This is suggestive that the development industry is slower to contract than to expand, but that the capacity to expand again is retained, at least to an extent, following a period of contraction.…”

Worst of the good and best of the bad

“…. whether to develop houses on greenfield or brownfield sites: the latter are potentially highly profitable given their central location and established transport links, but often risky due to the uncertainties associated with the actual ± as opposed to estimated ± decontamination costs (see Pryce, 2003); and . whether to purchase a particular property when the property market is booming or in a slump: the latter offers the most substantial gains if the JPIF 21,6 456 market picks up again within a reasonable timeframe, but there is no certainty that it will.…”