1. Urbanization and land use policies in urban areas – and their economic impacts Heikki A. Loikkanen Professor (emeritus) of urban economics, University of Helsinki Lecture at Aalto University, Dept. of Architecture, March 17, 2016, Espoo

2. 2 LAAKSO-LOIKKANEN (2004): KAUPUNKITALOUS (Urban economics). Contents in English I: URBANIZATION AND URBAN ECONOMICS II: MARKET MECHANISM AND URBAN DEVELOPMENT III: URBAN LAND USE IV: URBAN HOUSING MARKETS V: TRAFFIC AND COMMUNICATION IN URBAN AREA VI: LOCAL PUBLIC ECONOMICS AND URBAN PROBLEMS

3. GDP ”hills” in Eastern side of Europe 3 World Bank (2009): World Development Report. Reshaping Economic Geography Heikki A. Loikkanen, Helsingin yliopisto

4. GDP ”hills” in USA World Bank (2009): World Development Report. Reshaping Economic Geography Heikki A. Loikkanen, Helsingin yliopisto

5. 5 The population of EU and US cities in rank order 1998.

6. Share of urban popultion and GDP per capita in over one million population countries in 2012 Tietolähde: Maailmanpankki. Heikki A. Loikkanen, Helsingin yliopisto

7. 7 URBANIZATION IN A FEW COUNTRIES DURING 1800- 1996 Source: Bairoch 1988 (years 1800 - 1950), Statistical yearbook (year 1996). FIN

8. ON FINLAND AND FINNISH CITIES, AND HELSINKI AREA 8

9. Degree of urbanization and GDP per capita in Finland, 1860 - 1999 (index, 1926=100) Heikki A. Loikkanen, Helsingin yliopisto Lähde: Kuvio 5.8 (päivitetty) kirjasta Laakso & Loikkanen (2004) Kaupunkitalous

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11. Population 1960 - 2014 and its forecast to 2040 by region (blue Helsinki region, brown 6 other big cities, green other city areas, pink countryside) Heikki A. Loikkanen, Helsingin yliopisto Lähde. Tilastokeskus: väestötilasto ja alueellinen väestöennuste 2012. Alueluokittelu: Seppo Laakso.

12. 12 SIZE DISTRIBUTION OF CITIES

13. 13 Figure 8.2: The population of Finnish cities in rank order 2001.

14. The population of Finnish cities in 1985 and 2010 (in rank order 2010). (Source: Laakso & Moilanen 2011) 14

15. 15 WHY URBAN AREAS GROW? FIRMS SCALE ADVANTATAGES ROLE OF TRANSPORTATION AND COMMUNICATION COSTS ROLE OF FOOTLOOSE INDUSTRIES HOUSEHOLDS (CONSUMERS) BIG AND DIVERSE LABOUR AND CONSUMER MARKETS VATT/Kangasharju/NI

16. 16 AGGLOMERATION ADVANTAGES VATT/Kangasharju/NI Localization effects (advantages of local sector size) Localization effects (advantages of local sector size) Specialized inter- mediate goods and services Specialized inter- mediate goods and services Information flows Internal to the firm External to the firm Urbanization effects (urban size and diversity) Urbanization effects (urban size and diversity) Common labour market Common labour market ”Matching””Sharing””Learning” Competiton Cooperation

17. 17 RESEARCH RESULTS CONCERNING AGGLOMERATION EFFECTS* When the size (population) of city doubles, its productivity increases by 3 – 8 %. When the population density of city doubles, its productivity increases by 5 %. When the size of a industry in an area (city) doubles, its productivity increases by 4,5 %. FIRMS IN A SECTOR GAIN FROM GEOGRAPHIC, TECHNOLOGICAL AND HISTORICAL PROXIMITY WITHIN (URBAN) AREAS SOME OF THESE EFFECTS ARE VERY LOCAL * Rosenthal and Strange (2003): Handbook of Urban and Regional Economics VATT/Kangasharju/NI

18. 18 HOW MANY CENTERS AND WHERE? Paul Krugman: ”The resulting pattern may be determined by underlying resources and technology at some very aggregative level; but at ground level there is a striking role for history and accident.” VATT/Kangasharju/NI

19. 19 DISADVANTAGES OF AGGLOMERATION (URBANIZATION) MARKET MECHANISM MAKES FIXED (NON- REPRODUCIBLE) FACTORS EXPENSIVE HIGH PRICE OF LAND, HOUSING, NON-RESIDENTIAL PROPERTIES LOCAL CONGESTION, POLLUTION, NOISE, CRIME PARADOX OF SUCCESSFUL URBAN POLICY MANAGES TO ALLEVIATE URBAN PROBLEMS BUT THEN …. VATT/Kangasharju/NI

20. WHAT HAS HAPPENED TO REGIONAL INCOME PER CAPITA DIFFFERENCES? REGIONAL POPULATION AND EMPLOYMENT HAVE DEVELOPED IN AN IMBALANCED WAY WITHIN FINLAND IS THE SAME TRUE OR NOT FOR REGIONAL INCOME DISPARITIES? CONVERGENS OR DIVERGENS DURING LAST 45 YEARS? INCOME CONCEPT: DISPOSABLE INCOME PER CAPITA (OECD CONSUMPTION UNIT) Heikki A. Loikkanen, Helsingin yliopisto

21. REGIONAL DISPOSABLE INCOME PER CAPITA (OECD CONSUMPTION UNIT) IN SOUTH, WEST, EAST AND NORTH FINLAND IN 1966–2009, (index,Suomi=Finland=100). Heikki A. Loikkanen, Helsingin yliopisto Lähde: VATT: Talouden rakenteet 2011

22. What about income differences between areas within Helsinki capital city area (Helsinki, Espoo, Vantaa and Kauniainen). 22

23. Income differences within Helsinki area using average household income. Loikkanen&Riihelä 2014. 23

24. Income differences within Helsinki using average per capita income. Loikkanen&Riihelä 2014. 24

25. NEXT, LETS GO INSIDE CITIES AND CONSIDER WHY LAND USE PATTERNS AND URBAN FORM IS IMPORTANT FROM VARIOUS VIEWPOINTS - how cities look like from the horizon - but there are many more aspects 25

26. URBAN LAND USE PATTERNS AFFECT PRODUCTIVITY OF PRIVATE AND PUBLIC SECTOR HOUSING PRICES AND RENTS FUNCTIONING OF LABOUR MARKETS AND WAGE LEVEL WELFARE OF HOUSEHOLDS (INCOME LEVEL, DIVERSITY OF CONSUMTION, EMPLOYMENT OPPORTUNITIES) ENVIRONMENT IN MANY RESPECTS 26Heikki A. Loikkanen, Helsingin yliopisto

27. 27 LAND USE PATTERNS

28. 28 Historia ja maantiede

29. 29 POPULATION DENSITY (POP PER HECTAR) AS A FUNCTION OF DISTANCE TO CBD (km)

30. 30 TWO CITIES IN THE SAME SCALE

31. 31 7 CITIES IN THE SAME SCALE (POP DENSITY)

32. 32 HOW DOES URBAN LAND USE PATTERN AFFECT HOUSING PRICES, WAGE LEVEL, AND COMPETITIVENESS OF CITIES

33. 33 Density of buildingsHousing price CBD MARKET FORCES BASED LAND USE WHN JOBS ARE IN CBD Heikki A. Loikkanen, Helsingin yliopisto

34. 34 Density of buildingsHousing price CBD CBD SEASIDE CITY Heikki A. Loikkanen, Helsingin yliopisto

35. 35 Density of buildingsHousing price CBD CBD Effects of regulating hights of buildings Heikki A. Loikkanen, Helsingin yliopisto

36. 36 Density of buildings Housing price (land component is flexible) CBD CBD Impacts on urban structure and prices Heikki A. Loikkanen, Helsingin yliopisto

37. 37 Density of buildingsHousing price Unbuilt areas. CBD CBD Effects of unbuilt areas and sprawl Heikki A. Loikkanen, Helsingin yliopisto

38. CONNECTION TO LABOUR MARKET MOBILITY PUBLIC SERVICES (SKIP POLYCENTRAL CASE IF TIME LIMITS) Heikki A. Loikkanen, Helsingin yliopisto

39. FINNISH POLICY TARGETS AND REALITY GOVERNMENT PROGRAMS AND PROGRAMS OF REGIONAL ETC PLANNING BODIES AIM AT ELIMINATING SPRAWL WHICH IS SEEN AS A PROBLEM ESPECIALLY IN THE HELSINKI AREA MUNICIPALITY REFORMS AIM AT THE SAME PLANNING LEGISLATION INCLUDES TOOLS WHICH AIM AT THE SAME WHAT ABOUT REALITY 39

40. Population in Helsinki (central and suburbs) and other parts of the Helsinki region during 1900-2012 40

41. Population in Helsinki region during 1960-2010, in thousands 41

42. Jobs in Helsinki region during 1960-2010, in thousands 42

43. Population density (people per hectare of land) at different distances from center of Helsinki (railway station) in 1980 and 2007. Source: Jaakola & Lönnqvist (2009). 43

44. POLICY ADVICE TO MANY FINNISH CITIES, THEIR CENTERS AND SUB-CENTERS UNIFY AND DENSIFY SPRAWLED URBAN STRUCTURES IMPROVE THE ABILITY OF SUPPLY TO FOLLOW CHANGES IN HOUSING DEMAND INCREASE SUPPLY OF HOUSING WHERE HOUSING PRICES (AND RENTS) ARE HIGH IF POSSIBLE DECREASE DISTANCES WITHIN CITIES AND BETWEEN CITIES WITH LAND USE AND TRANSPORTATION REFORMS DECREASE DIVISION BETWEEN COUNTRIES, REGIONS AND AREAS WITHIN CITIES IN ORDER TO INCREASE THEIR CONNECTIONS, TRADE ETC. Heikki A. Loikkanen, Helsingin yliopisto44

45. POLICY ADVICE TO MANY FINNISH CITIES, THEIR CENTERS AND SUB-CENTERS TOLERATE DIVERSITY OF PEOPLE, DIFFERENT TYPES OF BUILDINGS ETC. APPLY COST/BENEFIT PRINCIPLE IN PRICING USE TAX ETC. REVENUES FROM LAND VALUES TO FINANCE INFRASTRUCTURE INCESTMENTS DO NOT PREVENT MOBILITY QUARANTEE MINIMUM LEVEL OF WELFARE IRRESPECTIVE OF LOCATION THESE ARE RELEVANT FOR CITIES, TOWNS AND VILLAGES ETC. OF ALL SIZES 45Heikki A. Loikkanen, Helsingin yliopisto

46. THANK YOU Heikki A. Loikkanen, Helsingin yliopisto

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