Edward Glaeser is said to be one of the most influential urban economic thinkers in recent years. This article ‘The Economic Approach to Cities’ is on of his more recent articles describing how economics is used in urban planning. The article is part of a multi disciplinary volume on how different disciplines approach cities and is meant to give non-economists a sense of the economic approach to cities. The article is split into a number of sections explaining the way in which economists analyse cities and the economic theories about the connection of cities and economics.

The first part of the article discusses the spatial equilibrium of urban economics and how different areas of a city should be equal in economics using the relationship between income and amenities less housing costs and transport costs. This is an interesting concept that people are in general on the equal greenest patch of grass in the city to be put simply. This theory is the basis of the Alonso-Muth-Mills model, which was developed in the 1960’s. This model assumes a number of things such as the cost of housing plus transport is constant across space. Glaeser agrees with the simplistic approach of this model on a general level but he states that it is ‘far from perfect’. The main issues with the model are the variants such as house quality and the exogenous and man-made amenities of different areas of the city.

There are other findings of the Alonso-Muth-Mills model such as the prediction of the location of different population groups. This found that in city centres there was usually more poverty because city centres attract the poor. Glaeser explains this phenomenon through the fact that the rich desire more land and freedom therefore, they are pushed to live in the outskirts where the land is cheap. They also use different transport to the poor through mainly private vehicles as opposed to public transport. It is interesting to apply this model to Melbourne which has recently reduced the poverty in the inner city and begun to introduce more upper class housing in the inner city such as docklands. However, the concept of the rich using private transport still appears quite prevalent.

The second model that Glaeser analyses is the Rosen-Rodback Model, which focus on ‘understanding prices across metropolitan areas’. The model is a much more complex formula than the Alsono-Muth-Mills model again analysing the amenity, income and house prices in order to identify the relationship of spatial equilibrium of metropolitan areas. The concept of negative amenity is quite prominent in this model with people requiring to be paid a higher wage to work in places that are colder, further away or have fewer public facilities. Glaeser explains these concepts in a very informative and simplistic tone to allow the non-economists to gain an understanding of what these tools are that are used to predict the economic success and failure of cities. He also uses the idea of hedonic pricing (willingness to pay for pleasurable places) and housing supply to reinforce the concept of spatial equilibrium.

Glaeser also discusses the economics of housing supplies within cities and its role in defining a city. The main points that he considers is firstly the fact that if a builder can sell a house for more than it costs to build logically it will be built. This is a defining fact in city growth and relates a lot to the regulatory regimes of the development. For example, the cost of supplying a new unit by building an extra floor of a skyscraper in Manhattan is much less than the benefit of selling one however the regulations will not permit this development. Glaeser argues quite strongly the point here, that it is not often finance or physical constraints that restrain building but rather planning regulation.

In conclusion, I think that Glaeser raised some very interesting points on his pursuit to identify how economists seek to understand cities. The central idea that people are in general quite equal in their economic situation when housing, costs, income and amenity of their area are taken into consideration is quite a revelation to me. I also feel that although this article was mostly written about North American cities the main concepts still apply quite strongly to Melbourne. Glaeser finishes the article by stating that although the economic approach to cities has many strengths it has also many limitations specifically as economist have never acquired the skills to analyse individual neighbourhoods. “No one can make sense of cities without the tools of economics” but “no economist can make sense of cities without borrowing heavily from other disciplines” are his final words summarising urban economics.

Questions:
- If economic spatial equilibrium in cities is true then why is it true globally?
- Is it bad for planning regulations to be the main factor in reducing growth?
- Why do we need to study and make sense of the economic intricacies of the individual neighbourhood?

Reference:
Glaeser, E. 2007, The Economic Approach to Cities, Harvard University
http://www.economics.harvard.edu/faculty/glaeser/files/kayden4.pdf

5. Commerce 7th April, 2008 18:23:43   [#] [2 comments] 

Hall’s “The City of Enterprise” outlines why there was a change in planning practices for economic growth of cities. His retrospective book outlines the British recession causing the loss of “two million factory jobs between 1971 and 1981”(p.379). The manufacturing crisis revealed that the Inner Urban Areas Act of 1977, was not a cohesive strategic plan to deal with this major economic issue. The failure of the Act resulted in a major shift in planning from the U.K model “regulating urban growth”(p.379) to the United States model of the “tradition of enterprise”(p.379). This decline in manufacturing was mirrored in the U.S.A, a prime example is the geographical area described as the “frostbelt” were “35 million lost their jobs between 1969 and 1979”(p.379). Halls position in this academic debate was that the government at the time focused solely on economic growth at the expense of future planing “obsession with encouraging growth at almost any cost.” (p.383) This focus lead planning to become self-destructive because the system had became “reactive, artisan, and anti-intellectual.” (p.403)

The “structural economic decline of whole urban economies” (p.403) in London was caused by the advancement of “containerisation” this resulted in a pivotal change in shipping and dock related industries. Eventually causing docks too relocate to more effective areas “estuary ports”(p.391). Leaving an area of “5,000-acre docklands”(p.391) to be redeveloped.

The structure of London’s Dockland redevelopment

• Margaret Thatcher came into power in 1979 were she established Local Government, Planning the “Land Act of 1980 and (the) Urban Development Corporations”(p392), under which the area of the docklands was called an Enterprise zone.
• The government changed their current system so as to allow them to use a more Americanised idea called “leverage…(this would result in more) public investment, (too) kick start the process…(and provide) much bigger volume of private funds.” (p.393) The new planning system “would replace local authorities, (and allow developers to develop land) without appeal.” (p.393)

Halls main criticisms of the London’s Docklands

• It was hard to measure how successful the project was because of the huge amount of money the public invested in “housing…(and) roads, (through subsidies from)…rate and tax allowances”,(p.394) for developments that moved into the docklands area.
• At the commencement of the project “planning permission was granted without a public inquiry”. (p.394)
• Hall criticised the project because it had no “strategic planning system … (therefore the developments where judged) on a case-by-case basis.” (p.402)
• The Docklands redevelopment did not provide the previous Docklands employees new jobs, because the project catered mainly for the “banking insurance and finance services” (p393).
• Hall’s concerns centered on the now, unaffordable new housing for the previous residents of the area due to the fact that the new workers had a “Distinctly higher income than the average local residents,… 1980s only 5% of sales were in the affordable category.”(p.394)
• Hall believed that private developers would not be investing in the best interest of the community, therefore there would be “limits on turning to the private sector for achieving public ends.” (p.398)

Hall states that “capital in ever fewer monopolistic hands – were transferring control of firms and industries out of local hands and into the boardrooms of ever more distant multinational enterprises,”(p.382) These issues related to globalization economically and the idea of innovation. These ideas are further developed in the contemporary report 3 Global Competitiveness and Metropolitan Strategy the bases of Melbourne 2030.

Discussion Questions

1) What do think the relationship between developers and planners is in Victoria today?

Hall refers to “Yuppies…Young Urban Professional(s)…inject(ing) their dollars (into)…restor(ing) cit(ies),… providing a new economic base to the city.”(p.834)

2) Do you think this has been the case in Melbourne’s docklands, and other inner city areas?
3) Has this had an effect on the socioeconomic diversity of the city?
4) Do you think it will take time for Melbourne docklands to become a more successful active zone?

Reference
Hall, P. 2002, “The City of Enterprise”, Cities of Tomorrow, Blackwell, Malden, ch. 11 (379-403)

5. Commerce 5th April, 2008 20:27:44   [#] [3 comments] 

As the summary is late, this is a stub for discussion of the Glaeser (2007) article. I will move the comments across when it is posted.

Note that this article is available online.

5. Commerce 5th April, 2008 16:22:04   [#] [0 comments] 

Mark Eppli and John Benjamin are both professors of finance and real estate at American universities. Their paper “The evolution of shopping centre research” was published in 1994 approximately 40 years after the first enclosed shopping centre was opened in America. During this time economists and developers have been creating theories to explain trends in consumer shopping patterns. This article aims to give an overview of the evolution of shopping centre research in response to American trends. It was published in the Journal or Real Estate Research and is concerned with the economics behind shopping centre trends and asks:

• How has the success of a tenant and/ or shopping centre been measured over time?

Summary

Eppli and Benjamin begin by giving an overview of shopping centre literature and the benefits of locating anchor and non anchor shops in the same location in order to create positive externalities.

They go on to analyse Christallers initial economic modelling of called Central Place Theory which he created in the mid 1930s before the first enclosed shopping mall. They discuss the theory which is based on two variables, range and threshold. Range is the maximum distance people will travel (distance to the closest centre selling the good) and threshold is the “minimum demand necessary for the store to be economically viable” (p.8). The theory concludes that shoppers will travel the minimum distance possible to obtain a good which Eppli and Benjamin state was reasonable at the time due to the high cost of transportation. They go on to state how the theory evolved when different variables were added. The biggest was that people rarely went to the shops for one item. This led to the research of multipurpose shopping behaviour and the realisation that people often travelled further than the distance to the closest centre. They found that “As the number of functions at each centre increases, the percent of customers using the nearest centre rapidly declines for all categories of convenience goods” (p.10). This was logical for most customers as doing all their shopping in the one location would limit the number of trips necessary.

Eppli and Benjamin go on to discuss the second major theory Homogenous Retailer Agglomeration which “is based on both central place theory and the principle of minimum differentiation” (p.11) and takes advantage of reduce travelling costs. The theory involves similar shops locating at the same location which in turn benefits all tenants. They refer to Hotellings theory which is based on the belief that “consumers patronise shopping centres with agglomerated homogeneous retailers in order to comparison shop and reduce search costs” and that “consumers will bypass the closest shopping alternative to comparison shop at a more distant shopping centre that houses a sufficiently large number of similar store retailers” (p.13-15). This leads them to discuss the tenant mix at planned shopping centres and how it varies to the mix at an unplanned centre.

Having established that the tenant mix in a planned centre can have a positive impact on surrounding shops Eppli and Benjamin discuss Retail Demand Externalities and present the arguments about whether the externalities apply in both directions or just one. They discuss the power of the image of the anchor tenant, and its ability to draw customers away from competing centres which in turn creates demand externalities for the non-anchor tenants too. When shoppers chose which centre to go to Eppli and Benjamin show that there are several criteria which influences their decisions including, distance, size, quality of shops and the centre, cleanliness, location, price, service and variety. Quoting other researchers surveys it is noted that “the mall tenant mix is important to the overall enjoyment level of the shopping centre experience” (p.16). They also quote work from Shilling and Eppli (1993) which found that, “Regional shopping centres with greater quantities of space devoted to anchor tenants have higher non-anchor tenant sales for eight of the nine merchandise types, with an average increase in sales of $83 per square foot for centres with a higher concentration of anchor tenants” (p.17). They highlight the link between the sales for non-anchor tenants located in the same centre as anchor tenants and the positive externalities and the potential for the centre owner to charge higher rates to non anchor tenants.

The final theory that Eppli and Benjamin highlight is Shopping Centre Valuation and the power of the centre owner to alter non anchor tenant rents, respective to sales. Research on this theory found that “low order retailers are willing to pay a premium to locate in planned shopping centres with high-order retailer customer draw" and that "retail tenants are willing to trade off percentage rent for base rent payments" and also that "building characteristics are important in establishing retail rental rates” (p.20). Eppli and Benjamin conclude that while this type of research is in its infancy developers are likely to capitalise on the externalities of anchor tenants for smaller retailers.

In conclusion Eppli and Benjamin found that shopping centre research methods evolved with peoples shopping patterns. They found that although central place theory was appropriate in the 1930s, with the popularisation of the motor vehicle and the increasing ease of transportation the theory had to evolve. They also demonstrate the shift in peoples thinking as it was once believed that combining similar shops in the same location would not work but as demonstrated above, it is the ideal setting for comparative shopping. “Over the past century retailers have gone from the general store, to the central city, to suburban shopping centres” (p.23). The article answered the question asked and detailed how shopping centre research evolved and why with examples throughout to give the article more integrity.

Relation to planning and economics

This article relating to the evolution of shopping centre research is relevant to numerous areas of economics and planning today. The article shows that research should and will evolve with changes in society, whether it is people’s behaviour or outside influences such as the cost of petrol.

Recent newspaper articles have been in relation to the “village economy” and the growing trend of customers frequenting their local independent supermarket rather than travelling further to a national chain store. The trend is said to be a sign of people returning to their roots and supporting their local economy. This begs the question, is central place theory becoming more relevant today? As people tend to be time poor and resource rich the convenience of shopping at local centres combined with the increased levels of service suits more and more people, and as a result local supermarkets get loyal customers.

Finally, national planning policies encourage shops to locate in activity centres to enable shoppers to get multiple items in the one shopping trip. This article stated that it was once believed that the grouping of like shops at the one centre was a waste of resources. If shopping centre theory didn’t evolve would there only be one supermarket in each shopping centre?

Discussion Questions

• Do you think malls will continue to gain popularity or will people choose to shop at local centres for homogeneous goods?
• Will increasing petrol prices and therefore increased transport costs have an impact on where people shop?
• Do shopping centre owners have the right to change non anchor tenant’s rates according to the potential positive externalities they may benefit from?
• As economic modelling is constantly evolving can shopping centre trends be modelled with accuracy?

Reference

Eppli, M., Benjamin, J. 1994, “The Evolution of Shopping Centre Research: A Review and Analysis”, Journal of Real Estate Research, v9, i1, p5 (28p)

5. Commerce 4th April, 2008 19:27:14   [#] [10 comments] 

The City as a Growth Machine is a piece written by Logan and Molotch that is broken down into five sections each discussing the systematic and sometimes flawed growth of cities focusing on examples around America. In this piece the authors try to highlight their ideas about the growth of cities: that growth is not random, that growth is not often due to logical planning policies and that growth is enmeshed in serving the capitalist ventures of the urban elite. Later in the piece Logan and Molotch are critical of what growth cities actually create and what the ‘trade offs’ are with rapid, capitalist- driven growth.

Logan and Molotch break their writing into five sections. The first of these sections focuses on the ‘urban elites’ and argues that groupings of people which result in a community grow not just according to logical geographical advantages but also historically due to the groupings of people who are motivated for growth to occur and who will ultimately benefit if growth is to occur. Logan and Molotch ‘stress that the activism of entrepreneurs is, and always has been, a critical force in shaping the urban system, including the rise and fall of given places’ ( 2007, pg52). The article then goes on to examine the growth Machine in U.S history and uses five examples to highlight urban ingenuity and growth manufactures by ‘urban elites’.

Logan and Molotch discuss the organization of the growth coalition being the ‘urban elites’ and powerful groups responsible for growth and claim that there are three factors used to grow business: politicians, the local media and utilities. They argue that these three facets are directly involved with the growth of a town. In regards to the local media it is them who ‘ congratulate growth rather than calculate the consequences, compliment development rather than criticize its impact’ (2007, pg70) and the politicians who are ‘ squarely in the hands of the growth machine coalitions’ ( 2007, pg66) by never insulting candidates of the development process and instead try to garner the favor of such persons.

Logan and Molotch go on to highlight the auxiliary players in the growth process being: Universities, Museums, Theatres, Professional sports players, Organized labor, Self employed professionals, Small Retailers and Corporate Capitalists.

In the later part of their piece Logan and Molotch discuss the effects of growth. They are very critical of the growth machine and state that ‘growth at best is a mixed blessing and the growth machines claims are merely legitimizing ideology, not accurate descriptions of reality’ (2007, pg85) . Logan and Molotch argue that growth and expansion has had both negative and positive effects on all sectors of society and that there have been notable trade-offs because of such quick capitalist based growth. The areas they draw attention to include fiscal health, employment where they argue that ‘local growth does not make jobs: it only distributes them’ ( 2007, 91), job and income mobility, social problems where they make the point that equality and racial integration has not increased and that ‘small places can be more easily integrated , racially and economically ( 2007, pg94), environment, accommodating natural increase in populations and satisfying public taste.

This piece can be directly linked to ideas surrounding Melbourne 2030 which is a subject discussed in other courses in the planning program. Inner- urban elites eg- developers and town planners generally promote high density, inner-city, multi story developments which promotes Melbourne as a Growth City.

Questions Raised

• Do you believe ‘active elites’ stimulate growth in the City of Melbourne today?
• Where does the disadvantaged or downtrodden fit into the calculations of the urban elite of the planning process in general?
• How do politicians balance the need to promote growth but at the same time accommodate dissenters in the planning process and issues of social dislocation?
• How does the state promote growth and at the same time maintain a healthy balance sheet?
• Where does climate change fit into the growth agenda?

References
Logan, J. Molotch, H. 2007, “The City as a Growth Machine”, Urban Fortunes, Univeristy of California Press, Berkeley, ch3

5. Commerce 3rd April, 2008 15:02:46   [#] [0 comments]