Markets, Development, Institutions and Efficiency
Throughout the world the development of housing depends on the combined operation of markets and public policy. In detail, markets work in different ways in different social, political and institutional contexts, but they have key elements that pervade a variety of settings. The process of development involves changes in the use of land and buildings that create new built-environment assets. Governments are not content to allow markets to wholly determine this process and the results or outcomes, and they therefore influence these processes through public policy. An important element of such public policy is land-use planning. In this chapter we provide a backcloth against which the policy and planning rationale, actions and outcomes of subsequent chapters can be displayed. An essential feature of this backcloth is an examination of how housing and land markets might be expected to operate in the absence of planning. This will be done by applying the concepts of mainstream economics to the demand for housing and land and the production of new housing. As explained in Chapter 1, in mainstream economics individuals and firms trade competitively in markets to maximize utility or individual well-being and to maximize profits. We will examine the role of prices, the nature of explicit and implicit markets, and the problem of determining the boundary of a housing market area.
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