Clear evidence re-zoning decisions favour politically connected – new paper by Murray and Frijters

Cameron Murray and Paul Frijters from the School of Economics at UQ have an excellent  paper out proving what we’ve all long suspected: that the politically well-connected do much better in the property development game than those less well-connected (see the Guardian write up). That said, the paper doesn’t prove any actual corruption, but it does show planning decisions often result in re-zoned areas that are clearly in the interests of well-connected developers (and that the re-zoned areas are occasionally of a suspiciously odd shape to favor those developers). Whether this results in inefficient economic outcomes is uncertain, as the authors acknowledge (p. 24 of the paper). It’s also uncertain what should be done about this research finding. The Murray-Frijters finding is consistent with the well-observed phenomenon that more persuasive and better-connected people are more successful and influential in most areas of business and society.

Perhaps the problem is that our planning regulations are so complex and restrictive that you need to be a well-connected, politically savvy operator to get anything done. In my view, the reform of planning regulations, to reduce their complexity and to take greater account of the benefits of economic development, should be a priority. As Brad Rogers has highlighted, for example, development restrictions relating to heritage are imposing a large cost on our community (Old Queenslanders in a New City). I’d note the Government is currently reviewing planning regulations (see Minister Trad’s media release from earlier this week), but I don’t expect that review will lead to the kind of profound changes that would excite me or Murray and Frijters.

Cameron Murray gives a good summary of the new research at his own blog Fresh Economic Thinking:

…How well-connected you are determines how successful you will be in getting your land rezoned for higher value uses. In Queensland $410million worth of additional development rights were given to mates in just our sample of decisions.

In the study we use sample of planning decisions and landowners involving a total area of 12,676Ha, made by one State authority, the Urban Land Development Authority (ULDA), which took planning powers away from local councils with the intention to increase the scale and speed of development in the rezoned areas. Throughout its time the ULDA was no stranger to accusations of bias, with the Local Government Association of Queensland arguing the government is “playing politics and favouring developers.”

In order to establish how well-connected both rezoned and non-rezoned landowners were, we trawled through a wide range of data on political donations, lobbyists and their clients, industry groups memberships, politicians and their former employers, relationships of ULDA board members, and landowner’s corporate records, in order to construct a relationship network.

We also compiled historical sales data to estimate that this series of rezoning decisions increased the value of the rezoned land by $710 million.

Our main finding however, is that well-connected landowners owned 75% of the rezoned land, but only 12% of comparable land immediately outside the rezoning boundaries, indicating that these decisions were primarily driven by the relationship networks of the landowners, rather than any technical assessment of efficient and appropriate locations for urban expansion.

Political favours in the property industry were found to be much more about being part of the entrenched well-connected political class, whose tight-knit mutual relationships support implicit favouritism, than about visible activities such as making political donations.

These well-connected landowners made $410 million in profit from the rezoning decision, at the expense of the public at large who had the option to instead sell those additional development rights. The data tells the story that connected property developers bought land unsuitable for development land on the urban fringe, then successfully lobbied State politicians and bureaucrats through their relationship networks to rezone areas where they had bought properties, wrong-footing both councils and other property developers. This process of influence took 7 years on average.

Well done to Murray and Frijters for this excellent new piece of work on a very important policy issue.

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2 Responses to Clear evidence re-zoning decisions favour politically connected – new paper by Murray and Frijters

  1. Jim says:

    I just had a quick flick through the paper. A really useful piece of work. Well done to Cameron and Paul for digging deeper into an issue most suspected was the case.

    I’m glad that there is to be a review of planning regulations. But I’d prefer that it takes a further step back and examines the land market more generally. Where are the market and policy failures occurring (restrained supplies, rigid regulations, externalities, asymmetric information etc.), and how can they be fixed through the full suite of policies (not just planning)?

    Relying on tweaks to planning regulations (one blunt tool) will do little, when the challenges in the land market are much more fundamental.

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