Here the focus is not on the private sec-
tor, but the significant role of the public sector in the mispricing of the urban goods and services integral to the property deci- sions shaping urban form. How? The public sector sets prices for some urban goods and services directly: they regulate prices for telecommunications services and electricity, and set property taxes and user fees. Local governments establish the prices for a substantial component of costs, by setting development charges, for exam- ple, that become embedded in house and commercial property prices. Other tax poli- cies and programs affect the prices of
urban goods and services, such as property taxes, tax rebates on new housing, gas taxes, sales taxes, infrastructure grants, income taxes or homeownership programs. If mispricing was limited to one or two
services, then it might not play a signifi- cant role in shaping urban form. As it is, mispricing is more the rule than the excep- tion: it occurs across a wide range of urban goods and services, as well as a wide range of financial instruments.
IMPLICATIONS OF MISPRICING For planners hoping to curb sprawl, the
Development Charge Distortions
Take development charges (dc) as just one example of mispricing. Let’s say there are two new homes of equal floor area on greenfield sites, one on a 20-foot lot and one on a 60-foot lot. Under a typical dc, they both incur the same charge, say $25,000. Yet, given the extra metres of road, sidewalks, pipes, cables, and wires, the actual costs associated with the wide lot are significantly higher than those for the narrow lot. The house on a small lot is overcharged: the actual servicing costs it incurs are $15,000. The house on the wide lot is undercharged; its actual servicing costs are $35,000. Nevertheless, both houses are charged $25,000 by the municipality to cover services, and this $25,000 must be recouped in the house price. This means that the market price for the narrow-lot house will be higher than it would if more accurate pricing prevailed, and the market price for the wide-lot house will be lower than it really ought to be. Under a more accurate pricing regime, the price differential between the two
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homes would be greater. Say the larger lot and house are worth $125,000, and the smaller property is worth $100,000, excluding the cost of the dc. Adding in the cost of the dc under an average cost-based approach, the wide-lot property would be priced at $150,000, and the narrow-lot property at $125,000, a $25,000 spread. If instead the dc reflected actual costs, the larger lot would be priced at $125,000
plus $35,000, or $160,000. The small lot would be priced at $100,000 plus $15,000, or $115,000—a spread of $45,000, as shown in the table below.
Average cost dc narrow lot wide lot
Lot and house $100,000 $125,000 dc
$25,000 total price $25,000 $125,000 $150,000 Actual cost dc
narrow lot wide lot $100,000 $15,000 $115,000
$125,000 $35,000 $160,000
This example illustrates how a dc based on average costs brings the prices of the
two types of house closer together than they would be if actual costs were used, dis- torting normal market signals.5
Overcharging provides a disincentive to purchase
the smaller, more efficient lot, and undercharging creates an incentive to purchase the larger lot, which under this regime of mispricing represents greater “value” for the money.
implications of mispricing are significant. It results in more sprawl and less efficient, sustainable urban development than would be the case if accurate pricing were in place. There is, as a result, overspending on infrastructure of all kinds, on building, and wasted resources. Money is misdi- rected to more metres of pipe or road rather than other, more productive undertakings. Equity becomes a significant issue in
the current environment, as those who choose to live more efficiently and sustain- ably subsidize the less efficient and sustainable choices of others. This is partic- ularly so given that the subsidies inherent in mispricing are largely internal, hidden and implicit and therefore not known or recognized by the “subsidizers”. This lack of transparency makes truly informed decision-making difficult, if not impossible. Ultimately, mispricing works at cross-
purposes to planning policies aimed at curbing sprawl, directly undermining them and rendering them less effective. A munic- ipal planning department toils away developing plans and policy for sustainable communities, while down the hall the financial officials design development charges, user fees or property taxes that, in effect, encourage sprawl. Delivering sus- tainable urban form therefore becomes more expensive than need be, as counter- vailing policies and programs exist, often within the same organization.
CURBING SPRAWL WITH BETTER PRICING
In short, if planners truly want to curb sprawl, and to promote efficient, sustain- able communities, they need to tackle the causes directly, not just try to regulate the symptoms. That means identifying and correcting the instances of public sector mispricing that shape urban form in our community, and advocating strongly for the adoption of accurate pricing. The key is that price should reflect costs, and those costs vary with location, land use and other cost-affecting urban form factors. If the costs of servicing new suburban communi- ties vary because of location within the community, the development charges should vary by location. If the costs of ser- vicing vary because of density, the development charges should vary with den- sity. The same applies to the price-setting
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