The recent global economic recession and the subsequent economic aftershock have impacted on urban governments and created the need to recalibrate economic analysis and tools in urban areas. Since economic analysis and economic tools have played a role in shaping both urban planning and policy decisions, it can be argued that effective planning must consider market forces to regulate land market forces and must use incentives to stimulate desirable outcomes. Problems may arise when economic tools are disregarded, when tools are not reconsidered in the face of market force changes, or when the economic impacts of various policy options are not considered.
The purpose of this Viewpoint is to identify situations where care and analysis are needed so as to assess either the impacts of existing economic tools, or where economic analysis should be used to assess the impacts of urban policy tools. Planners either need to be adequately educated to undertake basic economic analysis or to have the ability to recognise when it is appropriate to enlist the support of an urban economist or a planner with the requisite expertise. Examples will be provided to demonstrate where economic tools are applied without due consideration of their current impact and where policies are advocated without fully assessing the economic impact. These cases include methods of financing infrastructure, the application of pricing rules for user charges and the impacts of tools for encouraging public benefits when approving new development. Some key planning research issues and priorities for this field are then suggested.
The need to consider economics in the context of urban policy and planning decisions has been reinforced by what has been termed the 'Great Recession' that affected countries around the world in 2008-2010 (Brookings Institution and LSE Cities, 2010, 4). The recession and its aftermath have had significant impacts on the fiscal health of cities in terms of public finance and the ability of local markets to respond. Although emerging economies in Asia and Latin America may have had different experiences in this period - while numerous economies in Europe and the US have faltered - the negative impact on private sector markets and on urban areas, especially the metropolitan regions that are engines of the economy and recovery, has been self-evident.
On the public sector side too, the recession and its consequences have dampened local economies, which are obviously a component of the wider national economy, and decreased municipal governments' own sources of revenue, including local taxes. Local taxes levied by local governments vary according to national circumstances. They could reflect, for instance, local sales taxes, payroll taxes and /or property taxes. Sales taxes are vulnerable to lower sales in a recession. In terms of payroll taxes, recessions lead to higher unemployment rates. And as recessions deter the growth of new business and the housing sector, there will be lower growth in the assessment base to which to apply property taxes. There may also be higher default rates, delinquencies and non-payment of property taxes. Also, the local population has economic pressure and local politicians will be reluctant to increase property tax rates.
As central and other upper-tier governments face reductions in their taxes (such as corporate and personal income taxes as well as sales and other taxes), they have less revenue to use for transfer payments to municipal governments. In countries where some taxes are collected locally and sent to the central government and then reallocated to local governments, less revenue is collected for redistribution. This is also reflected in general transfers that may also face reductions for local governments.
Revenue from user charges is also likely to suffer. Many permits and fees are related to the vibrancy of the economy for items such as building permits and business licences. …