Yugoslav planners have not been able to organise the volume of residental construction to their satisfaction. This paper notes two fundamental reasons for their difficulty.
One route to an optimal amount of residential construction requires that decision-making be vested in administrative units which would not accord with political boundaries and which would have no historical antecedents. In the absence of such districts, existing administrative units would always build the correct amount of housing if they followed a particular decision rule, to maximise the social rate of return on the savings, including taxes, of their constituents. Planners have good, economic reasons, however, for choosing a different decision rule, maximising the income of their constituents. Both routes to an optimal housing policy are, therefore, effectively blocked, which is the first reason for the dissatisfaction of the planners.
A second reason must lie in the relatively high cost of construction. The empirical estimates of this paper, crude though they are, suggest that the planner must stifle his wish to encourage housing construction, for, at current costs, this would lower the national growth rate.
Get full access to this article
View all access options for this article.
References
1.
See the discussion in Fisher, J.C., Yugoslavia-a Multinational State, Chandler, 1966, Chap. IV.
2.
This is not to imply that housing planners ought to be motivated only by considerations of economic efficiency.
3.
Providing that each governmental unit is equally proficient at making the calculations necessary to implement the decision rule.
4.
This is somewhat over-simplified. It would be more correct to say that any geographic spill-outs be matched by spill-ins, which might take the form of a subsidy from a higher level of government.
5.
The usual expectation is that spill-outs will exceed spill-ins that output will generally be too small. This has been challenged by Williams in 'Optimal Provision of Public Goods in a System of Local Government ', J. Pol. Econ.1967, but Sjaasted has shown Williams' case to be an exceptional one.
6.
The following discussion proceeds in a way quite different from that pursued by Tiebout in his classic article, 'An Economic Theory of Fiscal Federalism', in Public Needs and Resources, Princeton University Press, 1960. It should be noted, however, that Tiebout explicitly noted that the optimal distribution of functions in a federal system would be much as described by Lösch for the private sector.
7.
Pure public goods are those goods with the characteristic that the consumption of it by any one person does not lessen the utility others can derive from it.
8.
Some of the most interesting questions concerning federal relations arise when the analogue to Losch's optimum optimorum is developed. These issues will be discussed in a subsequent paper.
9.
I am indebted to N. Tideman for several corrections of an earlier draft of this section.
10.
The reason residential construction is considered an investment good in the national income accounts of most countries is somewhat different. See Davidson P., and Smolensky, E., Aggregate Supply and Demand Analysis, Harper & Row , 1964, Chap. 15.
11.
What is required is that not all the labour in the low-income region migrate to the high before wages are equalised and that the marginal product of labour functions can be satisfactorily approximated by linear segments of equal slope over the relevent range.
12.
The rise in the wage rate in K is given by the slope of the demand curve in region K multiplied by the number of out-migrants. The fall in the wage rate in J is given by the slope of the demand curve in J times the number of in-migrants. Since the slopes are the same and the number of out-migrants must equal the number of in-migrants, the change in the wage-rate must be the same.
13.
Their location, however, might still pose problems for the land-use planner.
14.
The amortisation charge must also vary with the age of the migrant, which may or may not be relevant in a particular problem.
15.
Some comments on the characteristics of this market area may be appropriate. First, it may encompass the whole (or more) of a nation. Secondly, if migration costs increase less than proportionately with distance it may be discontinuous. Thirdly, one rapidly growing labour market may be wholly contained within another greatly complicating the calculation of the equilibrium wage in the encompassed market. Finally it should be noted that real wage differentials and not money-wage differentials are what matter. This is especially important because rents will be rising in the rapid growth region (due to short-run diminishing returns) and falling in the low-growth region (eliminating quasi-rents).
16.
Whether each household can achieve equilibrium between present and future consumption and within its own investment portfolio are separate issues which will not be considered here.
17.
The issue is somewhat complicated by the fact that workers in Yugoslavia share in the profits of their enterprise, but the general principle holds.
18.
The Ljubljana metropolitan area has been defined for planning purposes by the Urbanisticni Institut Slovenije as consisting of the following 13 communes: Ljubljana Mesto, Ljubljana Bezigrad, Ljubljana Vic Rudnik, Domzale, Cerknica, Grosuplje, Litija, Logatec, Kranj, Skofja Loka, Trzic, Kamnik, and Vrhnika. Since the volume of daily commutation was a consideration in defining the metropolitan area, it seemed sensible to take the same set of communes as the labour market.
19.
Berry, B.J.L. , Geography of Market Centres and Retail Distribution , 1967, pp. 5-9.
20.
When differences in industrial structure among communes are standardised out, the average wage in these communities is very much lower than would be predicted by their distance from the centre of Ljubljana. Their labour forces grew at well below the regional average between 1961 and 1964 (Vrhnika losing workers absolutely) but both experienced considerably greater than average rises in wages (particularly Vrhnika).
21.
Wages are for the social sector only. Since Grosuplje, Litija, and Cerknica have a relatively large number of private farmers, average wages in these communes were adjusted to compensate. The five central Ljubljana communes were combined.
22.
The value commuters place on their travel time has, as implied in the theoretical pait of the paper, a wide variety of uses quite apart from its relevance here. In general it is a necessary input into studies of the demand for services at any site, and into studies of choice of mode of transport facilities. To my knowledge, this is the first time this approach to estimating the value of travel time has ever been used, and it would seem to have quite general applicability.
23.
The marginal product of labour function is the partial derivative of the production function with respect to the number of manhours worked. I.e.:
Experts at the Urbanisticni Institut Slovenije report that the most recent construction bid for a large block of multiple dwelling units was for about 140,000 dinars per square meter, including all site preparation and the installation of all utilities but excluding schools. Each family was assumed to require 85 square meters. School costs were added on the assumption that there would be 12,250 children each requiring 6 square meters, and that school construction costs are the same as dwelling-unit construction costs.
27.
as Marjan Dolenc of the Economic Institut Slovenije obtained this estimate from local bankers for another cost-benefit analysis.
28.
This does not imply that all residential construction in the city should cease. Apart from the fact that individual demand for housing as a consumption good, may make construction quite a good investment, there may be a significant role for construction to make inter-regional migration more feasible. (Research on the effect of housing availability on migration is currently under way within the American-Yugoslav project.) More importantly, enterprises who voluntarily wish to purchase housing for their employees must be able to do so, since they presumably have compared the rate of return on such expenditures with opportunity cost of their capital. Finally, the estimates made here presume a prior investment in roads for communication. In an expanding area where road construction for commutation and housing construction for in-migration were realistic alternatives, the case for housing might be considerably stronger.
