The Effects of Land Policy: Quantity as well as Quality is Important

Abstract

Most studies of land policy, in the abstract and when applied to a country and to comparisons between countries, use a theoretical framework which is derived, ultimately, from Ricardo's land price theory. This is used to predict the effects and the incidence of the costs and benefits which result from applying land policy instruments. This article begins by comparing land policy in Israel and the Netherlands in that way. Both countries have a highly sophisticated and integrated set of land policy instruments. However, some very important differences between the effects of applying those instruments in the two countries cannot be explained within that framework. In particular, in the Netherlands, the development value of land is low and development gains small-in stark contrast with Israel. A supplementary framework is needed, and this is given by the stock adjustment model applied to housing. With this, the difference between the two countries can be explained as being the result of differences in the way the instruments are applied to influence the amount of housing supplied. The Ricardian theory and the stock adjustment model can be combined into one framework that relates land policy to housing production. The key variable in this relationship is the type of land development process that dominates in a country. Whether this process is carried out by a private or a public body can affect the volume of production, and hence the price, of housing. This adds a new element to the discussion about the relationships between planning, land supply and house prices.