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SGSEconomics & Planning

www.sgsep.com.au

September 2006

Productivity and the workplace environment

How does the quality and design of workplace accommodation affect a business’ productivity (or ‘effectiveness and efficiency’)? Quantifying productivity enhancements is difficult because of the multifaceted relationship between working environments and productivity levels.

Employers and researchers have tied productivity to many different factors, including management practices, compensation levels, staff morale and environmental comfort. Starting from this point, lost productivity can be measured through staff absences, health costs, quality of work, production costs, employee attitudes and downtime.

There is a substantial body of literature that aligns appropriately designed buildings with productivity enhancements. This is particularly evident when considering organisations whose payroll costs greatly overshadow all other costs, including those involved in the design, construction and operation of accommodation. In labour intensive service-based industries, Fisk and Rosenfeld (1997) summarise by stating:

“The economic incentives for investments in building and in building operation that improve worker productivity are unquestionable. Worker salaries exceed building energy and maintenance costs by a factor of approximately 100 and exceed annual construction or rental costs by almost as much. Thus, even a 1% increase in productivity should be sufficient to justify an expenditure equivalent to a doubling of energy or maintenance costs or large increases in construction costs and rents’ (p. 158).

In this context, efforts to save money on accommodation could easily translate to net losses if worker productivity is adversely impacted.

The US National Institute of Building Sciences’ Whole Building Design Guide (WBDG) highlights three areas where building design might bolster productivity:lPromotion of health and wellbeing;lProvision of comfortable environments; andlDesign for the changing workplace.

Promotion of Health & Wellbeing

The Internal Environmental Quality (IEQ) of buildings has been widely acknowledged as having the potential to affect workers’ health and wellbeing, and in turn productivity.

Numerous studies have shown how the characteristics of the built office environment are linked to the prevalence of acute health problems among office workers, often called Sick Building Syndrome (SBS) symptoms. These symptoms include irritation of the eyes, nose, and skin, headache, fatigue, and respiratory problems. The literature highlights the potential of healthier buildings in reducing the costs from performance detriments, health care entitlements, sick leave days, contagious symptoms, and responding to worker complaints. In a 1990 study of 4,373 office workers in the UK, Raw et al found that workers who reported high numbers of SBS symptoms during the year also indicated that the physical conditions of their workplace environment were having an adverse influence on their productivity. (Fisk and Rosenfeld, 1997)

Experiments have shown that SBS symptoms can be reduced through practical changes in the environment, for example increased ventilation or improved

Pg 3 The economic impact of the night economyPg 4 Universities’ contribution to the life of the cityPg 7 Eminent Domain - a policy dilemma for US PlannersPg 8 SGS News


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cleaning (Mendell, 1993). Even a slight increase in productivity, measured for example by decreased absenteeism or increased attentiveness, may be very cost-effective. In fact, statistical evidence suggests unhealthy air quality is costing Australian business about $12 billion per annum in lost productivity (Federation of Australian Scientific & Technological Societies, 2002).

Acknowledged productivity experts, Leaman and Bordass (1999) state that productivity gains of up to 20% can be achieved through improvements to the indoor environmental quality. To provide a local example, it is projected that the City of Melbourne’s new development, Council House 2, will achieve a 4.9% productivity increase which equates to $1.12 million annual savings in increased community service delivery and reduced absenteeism.

Comfortable Office Environment

Architects and designers have long argued that improvements in the interior design and décor of a workplace can contribute to the performance of hosted workers. Whether “real” or “perceived”, improvements in comfort have the potential to significantly impact worker productivity. Indeed, a 1995 White House report claimed that better constructed facilities could increase employee productivity and comfort up to 30% nationwide (Johnson Controls).

The Probe Strategic Review (Post Occupancy Review of Buildings and their Engineering) by the UK Department of Environment, Transport and the Regions (DETR) involved surveys of completed buildings that were considered to be well-designed, well-managed and attractive workplaces. After four years, the Probe team reviewed the findings of the buildings surveyed in order to investigate the link between workplace comfort, satisfaction and productivity. The review found that workers who perceived that they were comfortable tended to say that they were healthy and productive as well. In percentage terms, uncomfortable staff overall reported productivity losses of minus 8.8 per cent while comfortable staff reported productivity gains of plus 4 per cent, a significant difference of 12.8 per cent (DETR, 1999).

Moreover, studies have also shown that minor improvements in lighting, heating and cooling can significantly enhance employee comfort and productivity. For example, Aronoff and Kaplan (1995) suggest that:

“People become drowsy when the temperature is too high or the carbon dioxide level is elevated. When using a computer screen, being able to look at a distant view relaxes the eyes and retards the onset of visual fatigue symptoms such as sore eyes and headaches” (p. 39).

They conclude that “the effect on worker morale of a poor quality work setting remains long after the short-term benefits of the initial cost avoidance” (p. 73).

A Californian study (Kats, 2003) analysing the effect of the workplace environment on office worker productivity reached the following conclusions:lAn increase in daylight illuminated levels up to seven metres resulted in a 13% improvement in productivity;lA pleasant view meant that office worker performance was 10-25% better on tests of mental function and memory recall, compared with no view;lGlare from windows decreased performance by 15-21%;lIncreased ventilation was associated with performance improvements of 4-17%; lPhysical comfort conditions were found to affect worker performance by up to 20%; andlBetter quality ventilation reduces sickness by 9-50%.

Similarly, a number of separate case studies have shown evidence of where efficient lighting, heating and cooling have measurably increased worker productivity, decreased absenteeism, and/or improved the quality of the work performed. According to their results, an increase of 1% in productivity can provide savings to a company that may exceed its entire energy bill (Romm and Browning, 1994). One well acknowledged example is the ING Bank, which in 1997 relocated to a new headquarters in Amsterdam and by improving the daylighting, contributed to a decrease in absenteeism by 15%.

In addition to the improvements in productivity, the investment in a healthy environment is also a powerful demonstration of the employer’s concern for the well-being of their employees. A study in the USA, found that:

“Employees felt that the use of high-quality space standards and attention to employee space, such as work areas, training centres and cafeterias, not just public spaces like building lobbies, made a strong statement about how much the company valued its employees” (Becker, 2003, p. 358).

Providing a workplace that is conducive to worker comfort is likely to improve a firm’s capacity to attract the best recruits and retain a committed workforce. The US General Services Administration’s reports that:

“Since people are the most important resource and greatest expense of any organisation, the long term cost benefits of a properly designed, user-friendly work environment should be factored into any initial cost considerations” (Office of Real Property in the Office of Government Policy, 1999, p. 27).

Design for the Changing Workplace

A flexible workplace environment is important for organisations whose work practices are continually evolving to keep up with continuous advances and shifts in innovation, technology and demographics. The choice of building design, office furnishings, cabling, and other characteristics affects the time and cost of such redeployments. Aranoff and Kaplan (1995) demonstrate that “matching flexibility to the organisation’s activities is another means of enhancing the productivity of the office workforce” (p.14).


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In order for a workplace to operate most effectively, space needs to be used in a way that creates the right context for learning, concentration and communication—the building blocks of productivity. This is particularly important if organisational reform strategies identify a need for spaces and practices that allow for a range of teams and work styles. In this sense, purpose-built accommodation would be more effective in providing work spaces that are conducive to change and innovation.

More importantly, flexibly designed work spaces have the potential to dramatically reduce “churn”. Churn is defined as the:

“internal accommodation re-arrangements undertaken in response to changing organisational and functional requirements” (Facilities Management Association of Australia/Standards Australia HB 261-2001).

The Facilities Management Association undertook a survey in 2001 which found that the annual relocation of staff costs of churn was $2,482 per person or $41 per sqm net lettable area. Churn costs can be minimised in new buildings because they can incorporate systems such as flexible floor plates and moveable partitions which enable tenants to change the configuration of office facilities more efficiently than in older style office accommodation. Therefore purpose-built accommodation enables the optimisation of space allocation and flexibility in short term growth or restructuring.

References

Aronoff, S and Kaplan, A (1995) Total Workplace Performance: Rethinking the Office Environment, WDL Publications, Ottawa, Canada.

Becker et al (2003) ‘Interaction, identity and collocation: What value is a corporate campus?’, in Journal of Corporate Real Estate, vol. 5 no. 4 September 2003

Facilities Management Association of Australia Website, http://www.fma.com.au/content.cfm?infopageID=68, accessed on 28/6/06

Federation of Australian Scientific & Technological Societies (FASTS) Website, www.fasts.org, accessed on 29/6/06

Fisk, W and Rosenfeld, A (1997) ‘Estimates of Improved Productivity and Health from Better Indoor Environments’, in Indoor Air, vol. 7

Johnson Controls (1995) ‘Workplace Productivity, Environmental Comfort and Individual Control: A Direct Relationship’, White Paper

Kats, G (2003) The Costs and Financial Benefits of Green Buildings, A report to California’s Sustainable Building Task Force, Massachusetts Technology Collaborative, Westborough, USA.

Leaman, A and Bordass, B (1999) ‘Productivity in Buildings: The Killer Variables’, Building Research & Information, vol. 27, no. 1

Mendell, M.J. (1993) ‘Non-specific symptoms in office workers: a review and summary of the epidemiologic literature’, in Indoor Air, vol. 3

National Institute of Building Sciences (2006) Whole Building Design Guide, http://www.wbdg.org/design/productive.php, accessed 26/6/06

UK Department of Environment, Transport and the Regions (1999) Probe Strategic Review- Post Occupancy Review of Buildings and their Engineering, Building Services Journal

Footnotes

1. 11 EFT jobs per $1 million output for the Accommodation, Cafes and

Restaurant sector – from ABS, 2001, Australian National Accounts: Input-

Output Tables, Cat: 5209.0

The economic impact of the night economy

Some commercial precincts attract only a few lonely strollers after dark. Others remain vibrant as bars, clubs hotels and reception centres come to life. Often, local policy on night life focuses on nuisance control issues, and less attention is paid to economic impacts. A recent SGS study explored issues including the contribution that the late night entertainment sec-tor makes to the economy of Stonnington, an inner Melbourne municipality with major commercial precincts like Chapel Street and Toorak Road.

Based on a comprehensive survey, the study estimated the municipality’s 108 late night entertainment establishments (bars, clubs, hotels, and reception centres, referred to as ‘bars and clubs’ from here on) each provide an average of 11 equiva-lent full time jobs; totalling 1,185 for the city as a whole. This translated to $107.8 million (in 2001 dollars) worth of turnover in Stonnington bars and clubs, using ABS figures on jobs per $1million output1.

The study used input-output modelling of the Stonnington economy to identify how much the bars and clubs indirectly support the jobs and turnover of other sectors via their pur-chasing activities – an estimated $85.2 million worth of output in the commercial (or employment generating) sector of the municipality2.

Another stimulus to the Stonnington economy comes from “ancillary” spending by bar and club patrons who on a typical night to bars and clubs also visit other places like restaurants and cafes, cinemas and theatres, shops or car parks. A face to face survey found that on average, each bar and club patron on a typical night out spends around $48 at the bar/ club, $22 at a restaurant/ café, $15 at retail shops, $7 at cinemas/ theatres and $6 in taxi fares. Applying this average spending per person, it was estimated that $98.3 million worth of output / turnover in the Stonnington economy is due to the ancillary spending of the bar and club patrons.

The ancillary spending also generates its own flow on benefits due to the purchasing activities of the businesses servicing this demand. The total (direct and indirect) impact of the ancillary spending on the commercial sector was estimated to be around $181.9 million in 2001 dollars. So the total flow on benefits of bars and clubs to the Stonnington commercial sector was estimated to be $267.1 million ($85.2m + $181.9m).

2. SGS synthesised an Input-Output model for Stonnington based on ABS,

2001, Australian National Accounts: Input-Output Tables, Cat: 5209.0


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Universities’ contribution to the life of the city

Documenting the social and economic contribution of universities to the life of the city is strategically important for three major reasons. Firstly, it is widely held that universities are vital to the ongoing competitiveness of metropolitan and state economies in terms of skills supply, R&D and education exports. However, if this economic dividend from investment in universities is only measured in qualitative accounts or in partial analyses carried out by particular institutions, universities are disadvantaged when making funding and policy submissions to local, state or national governments.

Secondly, maintaining a steady flow of international students is increasingly important in the financial sustainability of universities. The University of Melbourne, for instance, is amongst the top 5 cities in the world for international students (O’Connor and Tsutsumi, 2005). To give themselves the best chance of retaining a competitive advantage in this market, a city’s universities need the sympathy and support of the wider community. This, in turn, requires that the universities have an authoritative, clear and compelling ‘story to tell’ regarding what they collectively offer the community.

Lastly, by gaining a shared understanding of their contributions to wider community well-being, universities and their local municipal governments are more likely to develop the trust and working protocols necessary to forge mutually rewarding joint ventures in such areas as the development of education and research infrastructure; marketing campaigns; and the attraction of research and teaching talent.

Universities and innovation: a wider role

Knowledge city thinking is now being rounded out to recognise the wider role of the universities in the social and cultural life of the metropolis. This echoes a valid, though somewhat overstated, critique of technology policy mounted by Richard Florida, author of “Rise of the Creative Class” and professor of Regional Economic Development at Carnegie Mellon University in Pittsburgh:

“Universities have been naively viewed as “engines” of innovation that pump out new ideas that can be translated into commercial inventions and regional growth.

This has led to overly mechanistic national and regional policies that seek to commercialize those ideas and transfer them to the private sector…this misses the larger economic picture: Universities are far more important as the…primary source of knowledge creation and talent” (Florida, 1999)

Florida’s critique continues on to say that “federal, state and local policymakers…have to stop encouraging matches between university and industry…[and] instead focus on strengthening the university’s ability to attract the smartest people around the world – the true wellspring of the economy.” (Florida, 1999)

Similar calls for a more balanced approach to knowledge industry development has emerged from the OECD, recognising the that the bulk of innovation in the economy is likely to be organic in nature, rather than ‘Schumpeterian’, that is, involving the commercialisation of inventions.

The OECD (1999, p 15) observes that ‘scientific content of innovation is increasing and the scientific roots of innovation are diversifying’, but at the same time recognises that:

“Innovation requires more than R&D. The emergence of a knowledge based economy is often associated with the growing share of R&D industries and the increasing use of advanced knowledge in hitherto ‘low technology’ industries. This view is far too narrow. The production of goods and services is becoming more knowledge-intensive but not necessarily more R&D intensive. Many rapidly growing new service activities (e.g. software, venture capital funds etc) employ highly qualified labour and are highly intensive in immaterial investment but not in formal R&D. They belong in the most innovative activities, are based on technological progress (especially in information technology), but do not appear among the ‘high tech’ sectors.” (OECD, 1999, p 16)

Similar sentiments have been expressed in a report by the Business Council of Australia (BCA) analysing New Concepts in Innovation, released in March 2006.

Identifying universities’ diverse contributions

Major studies in Boston and London have examined the impacts universities have had on their local communities, albeit with a bias on economic issues. These and other more localised US studies indicate that major research institutions function as real estate developers, business developers and economic generators, and also as philanthropists and catalysts for social innovation.

Universities as real estate developers

As colleges and universities continue their expansion and real estate development, they can serve as anchors of local and regional revitalization. In particular, they can play a significant role in anchoring development in areas that may, at first, appear too risky for the private sector. In some cases, university investment has primed the pump for considerable private-sector commitments – transforming retail corridors, housing and public spaces.


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For example, in Boston, construction spending at the eight major research universities (Harvard, MIT, Tufts, Brandeis, Boston University, Boston College, Northeastern, Umass-Boston) is expected to average as much as US$850 million annually. This spending contributes to the economy through employment of local contractors and construction workers, by developing facilities for continued growth of the universities’ research and teaching activities, and by creating an environment that will help universities attract (and help the region retain) talented students and scholars (Appleseed, 2003, p 7).

The Broad Street Redevelopment at Virginia Commonwealth University (VCU) (Virginia, USA) included a recreation centre, a parking structure, a large bookstore, a 396 bed student dorm and an art school complex. This later spurred private sector investment including 455 housing units, a home improvement retailer and a supermarket (ICIC and CEOs for Cities, 2002) In Australia, the Queensland University of Technology (QUT) is partnering the state government in planning and building a new integrated community, the Kelvin Grove Urban Village. On 16 ha adjacent to the university’s existing Kelvin Grove Campus in inner suburban Brisbane, the village will include education, residential, health, retail, recreational and business uses. University facilities will be used by local residents as well as by students.1

Universities as Business Developers

Gone are the days when the line between universities and private enterprise was clear. Today, several US universities have organized formal programs to educate student entrepreneurs, and help them launch new businesses. In Boston, MIT’s “$50K,” Northeastern’s”$60K” and Tufts’ Montle Prize business plan competitions, and Boston University’s Bronner E-Business Center, are examples. Research university faculty have been among the founders of leading Boston-area companies in a wide range of industries. The eight Boston universities also provide several types of support to members of the university community interested in starting new businesses, including: seed money grants for work on inventions with significant commercial potential; assistance in business planning; introductions to venture capitalists; assistance in recruiting a start-up team; and incubator space.(Appleseed, 2003, p 6)

Other universities have developed research parks and business incubators, such as the the ‘Enterprise Centre’ an incubator, founded in 1989 by the University of Pennsylvania’s Wharton School of Business. Focussing on entrepreneurship and enterprise development as the drivers for transforming declining urban communities, it has created more than 50 businesses and approximately 3,500 jobs(ICIC and CEOs for Cities, 2002).

Universities as Economic Generators

Universities have historically been interlinked with a community’s economy. In some places a university may be the region’s largest employer. However, the scale and degree by which major research institutions influence their economies are greater than ever before. A London study found that the average full time higher education student in that city spent nearly AU$9000 on travel, entertainment,

food, and other personal expenses per year (Calendar and Kemp, 2002). This did not include tuition, housing, or textbook expenditures. Given there are over 200,000 full-time higher education students in London, this equates to AU$1.8 billion in discretionary spending per year in London alone.

In fiscal year 2000, the eight Boston universities spent approximately US$1.3 billion on purchases of goods and services from Boston area vendors. The “multiplier effect” of the eight universities’ spending within the region on payroll, purchasing and construction generated an additional US$3.9 billion in regional economic output, US$1.6 billion in wages and more than 37,000 full-time-equivalent jobs in 2000 (Appleseed, 2003, p 7).

The Social Role

Many universities in the US have instituted programs and policies that not only interact with the communities around them, but benefit them as well. At St. Louis University (Missouri, USA), for example, university facilities are made available to local community groups at reasonable rates for everything from concerts, to fashion shows to town hall meetings. Last year, members of the Saint Louis University community (faculty, staff, students and alums) contributed 758,000 hours to community service in more than 16,000 volunteer efforts (Nicholson, J, 2005). Similar programs and efforts are now routine at universities throughout Australia.

A conceptual framework for measuring universities’ contributions

Measuring how universities contribute to the quality of city life poses a research challenge. One approach would be to use a five way organising framework, analysing the ‘life of the community’ in terms of five dimensions as shown in the diagram below - Social, Economic, Cultural, Governance, and Physical.

In this framework, the ‘Social’ dimension refers to factors such as (for example): Education levels and community engagement in continuing education; ‘Social capital’, meaning the degree of social cohesion and participation in voluntary community work, clubs and societies and other forms of community networking; Avoidance of entrenched disadvantage and social exclusion; Equality of opportunity and relative evenness in the income distribution; and Philanthropy and investment in not for profit institutions;

The ‘Cultural’ dimension refers to (for example): Vitality and outputs in the organised arts (visual and performance); Festivals and events which reflect, and nourish, community


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identity; and Investment in venues and institutional infrastructure to support artistic endeavour.

The ‘Physical’ dimension refers to (for example): Neighbourhood liveability and service levels (i.e. housing amenity, access to shops and personal services, access to health services, access to schools, access to parkland, access to public transport and so on); Environmental health; Quality of the public domain in key city precincts and major community gathering spaces; and The sustainability of the living environment (energy use, Greenhouse gas emissions, water conservation, preservation of bio-diversity etc).

The ‘Governance’ dimension refers to (for example): Community engagement with the processes of democracy at local, State and national levels; The capacity of the community to scrutinise government and hold it accountable; The capacity for dissent and the protection of the rights of minorities; The capacity to initiate innovative social policy; and The capacity of the various institutions of governance - elected members, executive government, the judiciary, the army and the police force – to be accurately briefed.

Each dimension would need to be ‘fleshed out’ to identify some key data types that might indicate the absolute or relative contribution of universities in each sphere. In the ‘economic’ dimension, the path is well trodden and the measures clear – the direct and indirect impact on jobs, output and value added - elsewhere a greater degree of original thinking would be called for. By way of example, the universities’ contribution in the ‘social sphere’ might be measured in terms of the volunteer hours contributed by university staff or by the notional rental value of university facilities made available to community groups on a concessional basis (as per the St Louis experience). A measure of the contribution of universities in the ‘cultural’ dimension might be the quantum of their outlays on publicly accessible galleries and performances by comparison to State Government expenditures in these areas.

REFERENCES

Appleseed, 2003, Engines of Economic Growth: the Economic Impact of Boston’s Eight Research Universities on the Metropolitan Boston Area, New York: Appleseed, 2003 http://www.community.harvard.edu/economic_impact_report/economic_growth_engines-full.pdf

Calendar, C and Kemp, M, 2002, Students studying in London: An analysis of data from the student income and expenditure survey 1998/99, South Bank University, for The Mayor of London

Florida, Richard. “The Role of the University: Leveraging Talent, Not Technology”, Issues in Science and Technology, Nov. 4 1999

Nicholson, James “Campuses as good neighbours” St. Louis Commerce Magazine http://www.stlcommercemagazine.com/archives/october2005/campus.html

O’Connor, Kevin and Tsutsumi, Jun (2005) International Students and the Changing Character of the Inner Area of a City: A Case Study of Melbourne (Paper presented to the State of Australian Cities Conference, December 2005, Brisbane)

OECD, 1999, Managing National Innovation Systems, p 15

ICIC (Initiative for Competitive Inner Cities) and CEOs for Cities, 2002, Leveraging Colleges and Universities for Urban Revitalisation: an Action Guide, http://www.icic.org

Footnotes1. http://www.kgurbanvillage.com.au/about/index.shtm 4/9/2006

Eminent domain (also known as compulsory acquisition, compulsory purchase, or expropriation1 ) has been a government tool in the United States since the inception of the US Constitution. In the US Bill of Rights, Amendment 5 to the US Constitution reads

“No person shall...be deprived of...property without due process of law, nor shall private property be taken for public use, without just compensation.”

Challenges to the US Supreme Court on this issue have come from both government and private citizens, with a balance being struck that eminent domain can be used to acquire private property for various public needs (parks, roads, schools, etc) but government must pay the citizens fair market value for their land.

For some time, however, US cities had been using eminent domain to acquire underperforming or blighted properties and give them to developers promising new jobs and increased tax revenue. The argument is a precarious one. What is defined as “public use”? Obviously parkland and roads are used by the public, but what about a shopping mall? Though owned by a private citizen, the public most certainly does use it. And what of the increased tax revenue that would be used for the public use? Does that enter into the equation?

Such was the decision the US Supreme Court had to consider on June 23, 2005 in the landmark property rights case Kelo v. City of New London.

Background on Kelo v. City of New London

By the 1990’s, the city of New London, Connecticut was suffering an economic decline, with a falling city tax base and population. In 1998, the pharmaceutical company Pfizer began construction of a major new research facility adjacent to the Fort Trumbull neighbourhood of New London. City of New London reactivated the New London Development

Interpreting Eminent Domain - a policy dilemma for US planners


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SGS Economics and Planning Pty. Ltd. September 2006

Corporation, a private non profit body under the control of the city government, to consider plans to redevelop the Fort Trumbull neighbourhood and encourage new economic activities that might be brought in by the Pfizer plant.

In 2000 the city approved a development plan which the New London Development Corporation had prepared. This provided for a resort hotel and conference centre, a new state park, 80-100 new residences, and research, office, and retail space. The City also authorized the corporation to acquire land in the Fort Trumbull neighbourhood.

Fort Trumbull was a 19th century neighbourhood of 36.4 hectares, which included 115 residential and commercial lots. The development corporation offered to purchase all 115 lots; however, the owners of fifteen of these properties did not wish to sell to the corporation. The City of New London chose to exercise its right of eminent domain. It ordered the development corporation, acting as the city’s legally appointed agent, to condemn the holdout owners’ lots. The owners sued the City in the State courts, arguing that the city had misused its eminent domain power, and the case progressed to the Supreme Court. The lead plaintiff, Susette Kelo, owned a home in the development area.

The decision

In a 5-4 decision, the Court ruled in favour of the city of New London. Justice Stevens, who wrote the majority opinion, said “the city has carefully formulated a development plan that it believes will provide appreciable benefits to the community, including, but not limited to, new jobs and increased tax revenue.”

Justice Kennedy wrote a concurring opinion, in which he stated:

“This taking occurred in the context of a comprehensive development plan meant to address a serious city-wide depression, and the projected economic benefits of the project cannot be characterized as de minimus...In sum, while there may be categories of cases in which the transfers are so suspicious, or the procedures employed so prone to abuse, or the purported benefits are so trivial or implausible, that courts should presume an impermissible private purpose, no such circumstances are present in this case.”

Justice O’Connor wrote the in the principal dissent: “Any property may now be taken for the benefit of another private party, but the fallout from this decision will not be random. The beneficiaries are likely to be those citizens with disproportionate influence and power in the political process, including large corporations and development firms.”

She argued that the decision eliminates “any distinction between private and public use of property - and thereby effectively [deletes] the words ‘for public use’ from the Takings Clause of the Fifth Amendment.”

Justice Thomas also penned a separate dissent, in which he argued that the precedents the court’s decision relied upon were flawed and that “something has gone seriously awry with this Court’s interpretation of the Constitution.”

He accused the majority of replacing the Fifth Amendment’s “Public Use” clause with a very different “public purpose” test:

“This deferential shift in phraseology enables the Court to hold, against all common sense, that a costly urban-renewal project whose stated purpose is a vague promise of new jobs and increased tax revenue, but which is also suspiciously agreeable to the Pfizer Corporation, is for a ‘public use.’” ... “Losses will fall disproportionately on poor communities. Those communities are not only systematically less likely to put their lands to the highest and best social use, but are also the least politically powerful.”

The Fallout

The resulting decision sent shockwaves throughout America. People were terrified that government had been given ‘carte blanche’ to take their homes and businesses and redevelop them. A Quinnipiac University (CT) poll, for example, found that 89 percent of voters in Connecticut wanted their legislature to limit eminent domain. A University of New Hampshire poll found that 93 percent of state residents were opposed to taking property for private development. Within days, state legislatures and local communities were drafting legislation to limit their own power of eminent domain, fearful of a negative citizen reaction. Currently, 21 states and the federal government have passed laws limiting their use of eminent domain, while an additional 6 are awaiting governor signatures. 24 states continue to operate without any laws restricting eminent domain powers.

For local planners, the Supreme Court had given them a double-edged sword. They now had a mandate to purchase and redevelop private properties for the betterment of the community. At the same time, they were now the lightning rods for any and all public debate on any project, as citizens now highly question any new planning project for fear of eminent domain.

Though new legislation has been passed in cities and states aimed at protecting property owners, clauses have been written in allowing for the reallocation of private property for the “betterment” of the community. This represents a tough ethical and moral dilemma for US planners, especially in areas with these “loop hole” laws.

References

Wikipedia, 2006, http://en.wikipedia.org/wiki/Kelo_v._City_of_New_London

The Castle Coalition, http://www.castlecoalition.org/legislation/passed/index.html

American Planning Association, http://www.planning.org

Cornell Law School, http://www.law.cornell.edu/supct/html/04-108.ZC.html

Footnote

1. Eminent domain (US), compulsory purchase (UK, NZ, Republic of Ireland),

compulsory acquisition (Australia), or expropriation (Canada, South Africa) is

the lawful power of the state to expropriate private property without the owner’s

consent, either for its own use or on behalf of a third party.

(Source: http://en.wikipedia.org/wiki/Eminent_Domain (14/9/06)).

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Urbecon

Also in this issue...


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SGS News

Patrick Fensham, SGS Director in Sydney, was one of the keynote speakers at the recent Hurstville Business Breakfast which was presented by the Property Council and Hurstville City Council. Pat spoke about “The Market and Planning in Sydney’s Centres” and discussed the viability of commercial development in Sydney’ existing major centres with Greg Incoll, Lindsay Taylor and Chris Johnson.

Updating our contacts details

SGS is currently checking that the mailing, telephone , fax and email details we use to contact our clients and colleagues are as up to date as possible. We do not use this information for any other purpose or make it available to any other person or organisation. So if you have received a telephone call and assisted us in this regard recently, it is much appreciated.

Paul Howorth and Jon Taylor have been speaking with community members on the Tiwi Islands about how The Tiwi Islands Local Government (TILG) has been progressing since its formation. Contracted by the Northern Territory Government, SGS has been conducting an evaluation of the three Regional Authorities in the NT-Tiwi Islands Local Government, Thamarrurr Regional Council (Port Keats) and Nyirranggulung Regional Authority (near Katherine). (more in Tiwi News 31 July 2006 at www.tilg.nt.gov.au/home/tiwi_news)

(more info at www.hurstville.nsw.gov.au/PageZone_DoingBusiness.asp?z=9&c=434&p=1188)

New staff SGS welcomes the following consultants:

Ralf Kersten - Dipl. Ing. (Urban and Regional Planning, TU Berlin). Ralf is a planner with particular skills in data analysis, CAD and GIS mapping, and monitoring and evaluation of urban restructuring programs and strategies. He has joined the Sydney office.

Rimma Mitelman - Bachelor of Commerce (Econometrics and Business Statistics), Monash University. Rimma’s skills include research, financial modelling, econometric modelling and analysis, forecast analysis, feasibility analysis, simulation, and cost-benefit analysis. Rimma has joined the Melbourne office.

Hongwei Luo - M. Software Systems Engineering (University of Melbourne), B. Sc (Ist class Hons), Hebei University), PhD candidate (current) RMIT University. Hongwei is a numerical/quantitative analyst specialising in applied mathematics, data analysis and statistical modelling. Hongwei has also joined the Melbourne team.

Sarah Ison (B.Econ, B Soc Sci (Development), University of Queensland. Sarah specializes in social research, economic and demographic analysis, socio-economic development and consultation. Having graduated with a double degree in Economics and Social Science (Development), Sarah has a strong understanding of both economics and social development.

Seminar on Metropolitan Strategies

SGS and Cityfutures (Research Centre of the Faculty of Built Environment, UNSW) recently hosted a seminar “Planning for Australia’s Major Cities: Sydney, Melbourne and SEQ Metropolitan Strategies”. The seminar was the first to compare the metropolitan strategies for Australia’s three largest cities. Speakers inlcuded Gail Connolly (Executive Director, Sydney Metropolitan Strategy), Professor Bill Randolph (Director, City Futures), and SGS Directors Vanessa Harvey, Marcus Spiller, and Pat Fensham. Read more details and SGS Directors’ presentations on the SGS website at http://www.sgsep.com.au/News/SGS5.6.1.html

Urbecon

Urbecon is published by SGS Economics and Planning Pty Ltd. Material included in Urbecon is compiled from project work and research undertaken by SGS. Occcasional guest writers may also be published in the newsletter, with separate acknowledgement of authorship. Urbecon is edited by Winsome Spiller. If you would like more information about any of the articles in Urbecon, or to send any comments, please e-mail us on [email protected] Recent back issues of Urbecon can be found on the SGS website at www.sgsep.com.au

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