Don’t Sell Off Public Land Right Before A Population Boom

The State of Victoria is selling off land around several of its inner-city Public Housing estates to pay for the renewal of 1,100 units on these estates.  They could just rebuild all the buildings with public funds.  My colleagues and I haven’t been given access to the cost data that would be necessary to estimate what a simple rebuild would take, but our back of the envelope estimate puts it at ~$450 million.  The government has already committed $185 million.

In this blog I’m going to illustrate why they should wait to sell off the land (or maybe just never sell it off?)  There’s a strong relationship between land values and population, and that relationship is not linear.  Below I have plotted the relationship between total residential land values in Victoria and population with data from Prosper Australia and PhD Candidate Phillip Soos.  Each point represents a year, and I have replaced the dots for each observation with the year.  What do you see?

PopulationLandValueChange
Residential Land Value Per Capita Versus Population, State of Victoria.  Data courtesy of Prosper Australia and Phillip Soos

If Victoria’s population rises to 7 million, as planned, the value of residential land will increase greater than proportionally.  So why are we selling off this prime land now?  Why not put it in a trust where it could be kept in reserve for when the land is really needed to house people after a major catastrophe, or sold off to pay for some other major emergency?

Let’s also recall that under the mono-centric urban economics model, land in the core is valued the highest.  So the relationship is going to be more extreme (more logarithmic than linear) if replicated the figure above but just compared inner city land values to the region’s population growth.  This is why the land sell off right before this big population growth spurt is particularly shortsighted.

I could try to pay for the VG to make the data necessary to figure that out.  But it should just be common sense for people working in this area.  What are we doing?

A little bit of transparency around this process and the final deal signed between developers and the government might inspire more trust in this decision.  But that appears, routinely, to be too difficult for DHHS.

Published by mattdpalm

Doctoral Student UC Davis USDOT Graduate Eisenhower Fellow 2014-2015

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