26 February 2011

Planning authorities perceive themselves as protecting the community from the market.

They often fall prey to the pitfall of seeking to stop the market from doing what it does without actually asking why the market is acting in a particular way, and whether the public interest is served by preventing the market from working.

Protection of employment land
Typically when planning authorities refer to employment land they are predominantly referring to industrial land.

For example, the NSW Department of Plannings Employment Lands for Sydney: Action Plan says that "Employment lands are commonly defined as industrial areas, which predominantly accommodate manufacturing, distribution and noncentre urban services such as panel beating and concrete batching plants.

The retail sector is Australias largest single source of employment, closely followed by property and business services. Businesses employing people in these industries are most likely to be found in zones excluded from the above definition of employment lands, that is: commercial, and business zones. Its in these zones that the urban employment is actually concentrated.

For example, there are a number of zones identified in NSWs Standard Instrument for job generating activities. These include: B7 Business Park; IN1 General Industrial; IN2 Light Industrial; and IN3 Heavy Industrial. An objective of each of these zones is to encourage employment opportunities.

However, the biggest single job generating sector of the Australian economy (retail premises) are not included in the range of matters permitted with consent in the zones. Curiously, even though business parks will create concentrations of people engaged in employment, it is not intended that they access retail premises on site, but instead, that they travel somewhere else for supermarket and related shopping.

On the basis of this flawed definition of employment lands, the NSW Department of Planning then goes out and seeks to protect employment land. The central mechanism for this protection is through section 117 directions. These directions govern the kinds of rezoning that may be considered or not considered. Relevantly, they provide that
when a council prepares a draft LEP that affects land within an existing or proposed business or industrial zone "[a] draft LEP shall ... retain the areas and locations of existing business and industrial zones, ... not reduce the total potential floor space area for industrial uses in industrial zones ... ".

There is some flexibility to go outside this rigid restriction, when a " council can satisfy the Director-General ... that the provisions of the draft LEP ... is in accordance with the relevant Regional Strategy or Sub-Regional Strategy prepared by the Department of Planning which gives consideration to the objective of this direction ... ".

However, regional strategies are not necessarily helpful for those who want to rezone underutilised industrial land to higher intensity employment uses such as retail or offices (or high density residential uses). For example, the 2005 Metropolitan Strategy includes an action requiring planning authorities to: "Protect and enhance employment lands of state significance."

This includes a requirement to " [p]rotect and enhance employment lands around Sydney Airport and Port Botany".  This land is well located and a good part of it would be better utilised, at highest and best use, as retail, office and/or high density residential land. Yet this is effectively prevented by law.

Draft subregional strategies state that the lands mapped out for ˜protection in the Employment Lands for Sydney: Action Plan must be retained for employment purposes.
Regretfully many people involved in planning are not aware that the modern economy is not as dependant on industry as it was in the 1950s, and there is nothing wrong with recognising the gradual reshaping of our economy around the services sector. Trying to prevent this process by legislative decree is unhelpful to the economy.

Planning authorities have moved to protect industrial land, in part, because they correctly perceive that the market will re-allocate some of this land to higher order (more valuable) uses if it is given the opportunity to do so.

This is a reflection of the fact that, in some areas, industrial land is oversupplied and not particularly well located or of an appropriate lot size. Preventing an oversupplied type of land from being diverted to use to meet an undersupplied type of land (such as retail development or high density residential) is inefficient and comes at great cost to the broader economy.

Strategic plans are often wrong
It should not be a public policy objective to maintain older industrial sites in established areas. Nor should it be an objective to "revitalise" them if that means retaining them as solely for industrial uses.

The legitimate public policy question is, what should be done to secure the best possible employment outcomes? What do we need to do to ensure that our community has the industry that it needs?

Modern industrial development requires large lots. The lot size of older industrial sites in the inner and middle ring suburbs of cities such as Sydney is generally inadequate for re-development of industrial sites (there is virtually no supply of lots in excess of 10 hectares in such locations in Sydney) and this would generally not represent the highest and best use of such land. Additionally, an industrial workforce is more likely to be living in outer suburban areas than the more expensive inner and middle ring suburbs.

The planning system is restricting competition, amongst property owners willing to sell their land for development, by limiting the supply of appropriately zoned land. As a result, there is a very clear shortage of land zoned for high density residential uses (in the inner and middle ring suburbs). There are also shortfalls in land zoned for high intensity employment uses, particularly business parks where office, retail and bulky goods premises are permitted. This constraint in supply makes homes and retail premises more expensive than they need to be, and this burden is ultimately borne by ordinary households (through more expensive housing caused by supply shortages or more expensive consumer purchases through the higher rents paid by retail tenants).

Why should it be a public policy objective to preserve industrial sites, as such? The public policy objective here should be to boost employment and ensure that there are sufficient supplies of land available to meet our communitys needs. On this point we note that the retail sector is Australias largest single source of employment, closely followed by the largely office-based property and business service sector.