City Economics, Urban Development and Finance

Lecture 1: City Economics, Urban Development and Finance

• The lecture was presented by Rukshan de Silva, RPIA ECD GAICD, on February 18, 2025.
• "U Gonna Listen Now" by Leilani Tallulah-Knight is featured in the UNSW Indigenous Strategy 2021.

Megatrends

• Concentrated urban growth increases the pressure to provide housing, infrastructure, employment, and services for a growing population.
• An aging population has implications for public services, housing, accessibility, and welfare support.
• Declining working-age populations are a global shift, with projections indicating a decrease from 7.3 workers per person aged 65+ in 1975 to 2.7 by 2055.
• The earth's limited natural resources like minerals, energy, water, and food will face increased competition and demand due to depletion and population growth.
• Australia generated 35% of its total electricity from renewable energy sources in 2023, including solar (16%), wind (12%), and hydro (6%).
• Biodiversity is pressured by population growth on natural habitats, especially with land clearing causing biodiversity loss and contributing to carbon emissions.
• Land clearing exacerbates erosion, reduces water quality, and worsens drought.
• Concentrating the majority of Australia's population in a small area makes environmental protection potentially achievable.
• Australia is especially vulnerable to bushfires, floods, droughts, and sea level rise.
• Climate change significantly impacts critical infrastructure in cities and industries.
• Planning plays a crucial role in reducing disaster risks and informs decisions to avoid loss of life and property, mitigating costs for recovery.
• As Australia grows, infrastructure demand increases to support and connect cities.
• The Sydney Metro network has a $53.1 billion price tag.
• Advancements in technology, AI, and the sharing economy disrupt industries like AirBNB and Uber, impacting transport, lifestyles, and behaviors.
• Demands for office space are changing due to remote work, leading to implications for land use patterns, development, and land values.
• Flexible zoning or performance-based measures are needed to enable innovation and support the sharing economy.

What is City Economics?

• Cities serve as engines of economic growth
• Spatial economic factors (urban growth theory) addresses why businesses and residents choose their locations.
• Land use pressures involve competing uses for land and determining the highest and best use.
• Public intervention and private investment define public and private sectors in urban development.
• City economics involves spatial disparity, housing sub-markets, location choices, and access/space trade-offs.
• An economist's view considers demand outweighing supply (housing shortage), market failure (housing affordability), the property cycle, monetary policy, and construction costs.
• A planner's view includes planning system failure, planning approval pathways, urban land supply, government intervention, and housing policy.
• The "latte line" in metropolitan Sydney indicates average weekly rents, the ratio of labourers to total jobs, and the ratio of managerial jobs to total jobs.
• The "Red Rooster Line" maps areas in Sydney.

The Role of The City Economist

• Examines chronic urban problems like sprawl, congestion, carbon emissions, pandemics, housing affordability, infrastructure pressure, and spatial inequality.
• Engages in debates surrounding greenfield vs. brownfield development, economic growth vs. environmental conservation, return on investment for public spaces, development feasibility, and high-speed rail vs. air transport.

Lecture 2: February 25, 2025 - Economic Theories

• Frank Stilwell's 2014 "Neoliberalism in the City" defines neoliberalism as an ideology emphasizing free market competition.
• Neoliberalism is associated with laissez-faire economics, advocating sustained economic growth, free markets, minimal state intervention, and freedom of trade and capital.
• Some sources suggest that Neoliberalism believes markets can self-regulate in relation to all conceivable social and economic shocks.
• Government regularly use economic agencies and consultants, giving a veneer of objective economic assessment to government programmes
• Policy proposals need to be put through a neoliberal filter to determine their economic viability and appropriateness
• Critics argue neoliberal policies exacerbate social problems, requiring greater state intervention, and cuts designed to "slim the state" lead to rising poverty.

Classical Economics

• Developed by Adam Smith (1723-1790), economics in the 18th and 19th centuries.
• Focused on production of goods and services.
• "Laissez-faire" dictates that the economy is self-regulating and rejects government intervention, which represents economic freedom in a free market.
• The "invisible hand" represents the forces moving the free market.

Marxian Economics

• Developed by Karl Marx (1818-1883).
• Rejected classical economics, critiquing the capitalist view of the free market that only benefitted few stakeholders.
• Focused on the class divide in society caused by capitalism and argues for government-led economic decisions.

Neoclassical Economics

• Developed by Alfred Marshall (1842-1924).
• Rejected that the cost of production was the most important factor, and instead argued for consumer's value of goods and perceived utility to the consumer.
• People will not always buy less of a product if the price increases.
• Price elasticity shows how responsive consumer demand is for a product based on its price; price can be responsive or unresponsive.
• Supply and demand, cost of production, and price elasticity all work together.

Keynesian Economics

• Developed by John Maynard Keynes (1883-1946).
• Argued that free markets have no self-balancing mechanisms that lead to full employment.
• Argued that government intervention was necessary through: Monetary Policy, Fiscal Policy, programs, and investment.

Location Theories

• Explores spatial economics: why economic activities are located where they are.
• Assumes actors operate in self-interest, maximizing profits/utility.
• Location preferences/demand for land in particular locations changes for various reasons.
• Involves basic land use theories such as: Highest and Best Use (von Thünen, 1826), Industrial Location (Weber, 1909), Central Place Theory (Christaller, 1933), Institutional Factors (Hoover, 1948), and Bid Rent Theory (Alonso, 1960)

Basic Land Use Theories

• Highest and Best Use (von Thünen, 1826) involves agricultural location in an isolated state, with land use determined by the cost of transporting goods, leading to decreased land value with distance from the market via rent gradients.
• Industrial Location (Weber, 1909) Minimises the cost of raw materials (R1,R2), labour, and agglomeration economies.
• Central Place Theory (Christaller, 1933) explains settlement numbers, size, and locations, establishing a threshold of economically viable people and the distances consumers will travel for goods/services.
• Institutional Factors (Hoover, 1948) recognises economic factors.
• Bid Rent Theory (Alonso, 1960) focuses of proximity with the highest land values, and various demands, with different amounts of revenue for land.

Lecture 3: March 4, 2025 - City Growth

• Quiz next week is worth 20 marks and includes multiple choice/sequencing and matching questions, and assesses concepts/theories/ideas between Week 1 and Week 4.
• Examines the location of cities depending on: Resources, Topography, water, climate, and spheres of influence.
• An agglomeration economy refers to the benefits when firms and people locate near one another in cities and clusters.
• Includes: Knowledge Spillovers, Labour Market Pooling, and Input Sharing
• Some drawbacks of agglomeration are Congestion, housing affordability and availability constraints, environmental degradation, Strong competition, and knowledge spillover risk.
• Equilibrium refers to a stable state of the economy where the benefits are balanced against the potential drawbacks.
• Decentralisation occurs: with high-cost areas that are inefficient, and with areas that can afford to spread infrastructure.
• A general land use pattern in urban area includes: Central business districts, zones of transition, suburbia, and rural-urban fringe.

Urban Land Use Patterns

• CBD has maximum accessibility.
• Competition causes increasing land values/intensification, overcrowding, and a limited land area.
• Zones of transition allows for commercial value, mixed use, and redevelopment due to proximity to CBD.
• Suburbia allows lower land values/density, allows socio-economic class ethnic clustering, has access to transport hubs and recreational spaces, car dependent, and connected via motorways.
• Rural urban fringe is decreased via greenbelts, and replaced with farmland.