The term urban planning refers to the attempt to control the character and location of housing, industry, and recreational developments according to a preconceived pattern or design. Such designs are thought necessary in the context of urban development because of the externalities or third-party effects associated with the close contiguity of urban life. In densely populated areas, for example, the location of major industrial developments close to the places in which people live may result in objectionable pollution. Urban planning is considered necessary to ensure the appropriate separation of different land uses in order to improve the quality of urban life.

Traditionally arguments of this nature are invoked in the context of theories of market failure, which suggest that without governmental oversight unregulated market processes will result in a suboptimal pattern of land use. Within this context, governmental urban planning can take the form of either direct ownership of land with the state acting as the developer of different sites or the more common form of regulatory restrictions on the property rights of private individuals and organizations. In this latter case, it remains the prerogative of private agents to bring forward proposals for the development of land, but these proposals must conform to the principles laid down in some form of land use plan prepared by the public authorities.

With its emphasis on the importance of competition and spontaneous order, libertarianism is often thought to be hostile to the design mentality that appears inherent in this notion of urban planning. Libertarians, however, tend not to question the need for urban planning per se, but governmental attempts to monopolize the process of land use control. Libertarians do not oppose hierarchies and organizations such as firms, which engage in planning activities. What they question are attempts to replace a diversity of competing private plans with a unitary structure of government control. The planning activities of firms within a market do not constitute a unitary hierarchy of control because they are embedded in a wider process of competitive experimentation as workers, investors, and consumers may select from a range of competing organizations in pursuit of their personal goals. Seen in this light, competition is a process that may operate at multiple levels, including competition between different organizational forms and between different sets of rules for ordering social behavior.

The case of shopping malls has often been invoked in this context to illustrate the manner in which private planning may perform most, if not all, of the major functions often ascribed to governmental land-use controls. The proprietors of malls do not allow a free-for-all on their premises, but define a set of rules that govern the behavior of retailers and shoppers alike in order to internalize potential externalities and, thus, to benefit all who use the mall. Competition in such a context occurs on at least two different levels. On the one hand, the various retailers compete for customers within the boundaries of the mall. On the other hand, the proprietors of the mall compete for consumers to patronize their mall, rather than those owned by competitors. In the latter instance, the rules of conduct, such as regulations on shop frontages, smoking, animals, and skateboarding supplied by the proprietor, and the environmental characteristics of the mall, such as access to car parking, landscaping, and architectural design, are subject to competition from alternative proprietors who offer different arrangements.

Seen in this light, the libertarian approach to urban planning focuses on the importance of competition between different types of control or, to put it differently, on the importance of a “market in regulation.” In one of his few published statements on the topic, Friedrich Hayek put the issue very well:

Most of what is valid in the argument for town planning is in effect an argument for making the planning unit for certain purposes larger than the size of individually owned property. Some of the aims of planning could be achieved by a division of the content of property rights in such a way that certain decisions could rest with the holder of the superior right… . Estate development in which the developer retains some permanent control over the use of individual plots provides at least one alternative to the exercise of control by political authority. There is also the advantage that the larger planning unit will be one of many and that it will be constrained in the exercise of its powers by the necessity of competing with other similar units.

Libertarians have cited historical evidence to illustrate the practical successes that have been achieved by such private forms of proprietary urban planning. Stephen Davies, for example, has shown that a large part of the urban infrastructure developed during and after the Industrial Revolution in Britain was the product of private planning and was responsible for what are now some of the most sought-after residential areas in England. Covenants and estate development models provided a wide range of public goods, such as street lighting, roads and sewage facilities, as well as aesthetic controls, and housed the vast majority of the middle and working classes in affordable accommodation, whereas the unsanitary and shabby housing developments that are the stuff of Dickensian imagery were the exception and not the rule.

More recently, the growth of innovations such as homeowners’ associations, condominium developments, and private communities have been cited in support of a libertarian approach. In the United States, for example, the most recent data suggest that there are approaching a quarter of a million private associations involving 50 million people that use contractual forms of land-use control such as restrictive covenants. Developers compete by providing different packages of contractual restrictions tied to the purchase of property on the assumption that people are willing to pay a premium to live in an area where there are limits on what their neighbors can do with their property. These groupings range from relatively small-scale associations working at the level of an individual neighborhood or street to much larger developments such as Reston, Virginia, with a population of 50,000, where entire towns have developed on the basis of private contractual planning.

From a libertarian perspective, the advantages of private urban planning are similar to those of competitive processes in general. They facilitate a higher level of experimentation in discovering public preferences for different types of land-use control than possible under governmental alternatives, and they provide more powerful incentives for planners to improve the quality of their performance over time.

Further Readings

Davies, S. “Laissez Faire Urban Planning.” The Voluntary City. D. Beito, P. Gordon, and A. Tabarrok, eds. Ann Arbor: University of Michigan Press/The Independent Institute, 2002.

Hayek, F. A. The Constitution of Liberty. London: Routledge, 1960.

Jacobs, Jane. The Death and Life of Great American Cities. New York: Vintage, 1961.

Nelson, R. “Privatising the Neighbourhood.” The Voluntary City. D. Beito, P. Gordon, and A. Tabarrok, eds. Ann Arbor: University of Michigan Press/The Independent Institute, 2002.