Wednesday, March 1, 2017

NIMBYism, community participation, market failures, and slum redevelopment

Conventional wisdom would have it that information asymmetry increases higher you move from the cutting edge. In economics, this translates into the belief that individuals know what is best for them and individual choices are reflected in the market mechanism. In case of governments, this underpins the case for decentralisation. 

Richard Florida highlights the challenge of NIMBYism in easing zoning regulations and expanding housing supply in cities. The prevailing institutional mechanisms give an effective veto to local residents in such land-use decisions. He points to a new paper by Paavo Makkonen that, among other things, has this to say
The paper joins a growing chorus of urban economists and urbanists who call for shifting land use decisions away from the local level and toward the metropolitan or even the state level. This would make it more possible to design a policy that encourages an increase in overall density—but would also require checks and balances to prevent abuses of less-advantaged neighborhoods.
This is clearly an example of a failure of excessive community empowerment. Local land owners privately appropriate most of the benefits of the city's development, for which their contribution is marginal or negligible. And they are sufficiently empowered to oppose any efforts to socialise even a share of these benefits. 

This reminds me of one of the less discussed problems of the current model of urbanisation, one this blog has raised on several occasions. As cities grow, the scarcity of buildable land intensifies driving up property prices, forcing redevelopment and gentrification of blighted and more affordable localities. In fact, the entire urban core becomes gentrified, with those who cannot afford housing being marginalised to the suburban doughnut. Even the affordable housing mandates in all these cities are only marginally useful since the rents are so high that such units are affordable to only the middle class. This is a serious market failure in the prevailing models of urbanisation in developed countries. 

Interestingly, the politics of urban areas in developing countries like India may have, unwittingly, become good antidotes to the wholesale gentrification of Indian cities. Slum-dwellers, collectively, form influential political constituencies. In other words, the frustrating failure to progress with slum-redevelopment on Public Private Partnerships (PPPs) in India may after all be a blessing in disguise. 

It is perfectly plausible, even most likely, that if these slums get redeveloped with a combination of good housing units for slum dwellers and commercial developments, then its gentrification is almost inevitable, only a matter of time. Even with all the regulatory restraints on resales,  it is impossible to fight the inexorable dynamics of market forces, dictated by rocketing prices in the city's central areas. The incumbents are most certain to sell off and be displaced further away from their livelihoods. 

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