Thursday, August 24, 2006

Local retailing monopolies

I have been reading Alan Moran's The Tragedy of Planning which argues that having too few land releases with too many urban planning restrictions has driven the sky-high house prices Australians now experience. I've already posted on this general thesis.

One of Alan's remarkable claims is that:

'Metropolitan Development in Victoria is controlled under Melbourne 2030. Not only is housing development constrained, but retail activity is being increasingly concentrated in a limited number of existing large centres. This is reinforced by existing planning laws which require new retail developments to prove that they will not have a deleterious impact on existing retail centres in their region - in other words that they will not compete with existing centres. The planning laws also require that new centres provide the same level and character of public amenity and access as existing facilities irrespective of their client's desires and nature.' (p. 32,my bold).

As an instance of this Alan cites the thwarted development of the Essendon airport site as a 120-store retail centre. I assume N-I-M-B-Y considerations partly drive such outcomes. We don't like to have to drive far to the shops and prefer a higher density of retail centres provided that they are not located next door to us!

The general consequence of such development restrictions nationwide is that we are undersupplied with shops compared to, for example, the US. Moreover, shops that do exist facing higher occupancy costs and less competition so consumers face higher than necessary prices. Additionally, with low density, use of motor cars in the periphery of urban areas to carry out shopping trips becomes that much more essential.

Retailing is one of the most important sectors of our economy since it is where we spend most of our incomes. Many of the features of retailing (warehousing, distribution and the actual selling) involve substantial economies of scope and of scale. There has already been a Senate inquiry into the effects of concentration in this sector.

Australian economists have devoted little effort to thinking about Australian retailing. They should devote more. I am unsure Alan Moran's claims are completely sound - though I have no specific query in relation to them - but they seem persuasive and have strong implications.

I am interested in views on these claims. More generally I would like to see a PhD student spend a few years getting to the bottom of what is happening in Australian retailing. How well are customers being serviced in Australia by the concentrated retailing structures we have and the apparently relatively sparce distribution of retailing shopping centres?


FXH said...

off topic: Harry - did you see the Colac experiment with healthy food?

hc said...

fxh, I've heard quite a bit about but no results so far UI think. A link describing the project is here. A quick Goggle search and so far nothing.

russ said...

Harry, I am not sure Alan is right about the planning laws. Economic detriment is not considered a viable reason for objecting to a new development. The zoning system, third party rights (NIMBYism) and Melb2030 activity centre planning, all work to reinforce existing centres, but it is not an explicit restriction.

The planners prefer retail to be close. It reduces the total length of trips when activities are clustered, and makes it easier to build viable public transport. However they argue (try searching for "activity centre planning Melbourne"), that over the past 25 years the government/developers have consistently ignored their strategic plan and built things wherever.

That there haven't been many new centres is mostly because noone starts a centre without a major retail anchor to support the specialty shops. That means convincing either Coles/Myer or Westfield, who own the current centres to start a franchise, or finding something else to fill the gap (an Ikea for example). The market is almost certainly uncompetitive, but I don't think that is for lack of retail space. The existing centres expand quite regularly.