Stimulating real estate development through public-private partnerships: assessing the perceived opportunities and challenges.

Author:Leland, Suzanne
Position:Report

INTRODUCTION

Public-private partnerships that encourage specific types of real estate development have been widely praised as a means of addressing complex social problems. For example, many affordable housing programs, urban renewal initiatives and transit-oriented development projects rely on strategic interactions between government entities and private firms to alter the built environment in positive ways. Nonetheless, the merits of these collaborative efforts have been drawn into question by those who fear limited stakeholder involvement, significant transaction costs and disparities in negotiating power may impinge upon the benefits derived by the public sector. These concerns threaten to undermine the legitimacy of public-private partnerships and prevent their use, even in situations where they are potentially advantageous.

The analysis presented in this paper addresses these governance issues using data collected from a segment of a national survey of over 1,400 American Planning Association (APA) members. A series of empirical models are estimated to assess planners' attitudes towards public-private partnerships, as well as the extent to which those attitudes are influenced by a planner's age, education, gender, race, political ideology and sector of employment. The analysis is intended to advance the study of both cross-sector collaboration and representative bureaucracy in an era where local governments continue to seek out opportunities to leverage private sector resources to promote the public good.

In the aggregate, the analysis offers a means of assessing whether those engaged in the practice and study of urban planning have favorable attitudes towards public-private partnerships or if significant concerns exist about their ability to effectively promote social policy goals. Examining planners' personal and professional attributes additionally provides an opportunity to determine if diversity in the planning profession is essential to ensure communal interests are taken into account when local governments enter into collaborative agreements. Both issues are important in response to recent calls for members of professional organizations such as the APA to actively protect the public interest when public-private partnerships are formed.

The paper begins by reviewing the existing planning and public administration literatures to identify practical and ideological concerns associated with the use of public-private partnerships. A series of related studies are then introduced to support the contention that planners' personal and professional attributes affect their perceptions about this form of collaboration. The dataset and methodology used to assess planners' attitudes in this study are discussed next, before concluding with an analysis of the empirical results and the policy implications. Overall, the findings indicate that planners are optimistic about the use public-private partnerships to stimulate real estate development, but their individual attributes influence their perceptions about the need for stakeholder involvement, the magnitude of transaction costs and the social policy goals that can be achieved.

PRACTICAL AND IDEOLOGOICAL CONCERNS

The term "public-private partnership" has many connotations, but usually refers to some form of collaboration between a government entity and a private firm to advance mutually beneficial goals (Nijkamp et al. 2001). Private firms are often expected to bring technical expertise, managerial capacity and innovation to the table, while government entities contribute financial resources, institutional knowledge and a means of overcoming regulatory hurdles (Koppenjan and Enserink 2009). Leveraging each sector's unique strengths in this manner provides municipalities with a way to address problems that could not be easily resolved otherwise.

Public-private partnerships have been studied extensively in the field of infrastructure provision, where private firms routinely construct, manage and finance facilities essential to the operation of government. Only recently has a significant amount of attention been devoted to partnerships involving speculative real estate development. Municipalities often engage in these projects when the construction of new buildings is anticipated to stimulate economic growth in targeted geographic areas, although some projects are designed to advance social objectives such as historic preservation or the provision of affordable housing. Tax incentives, land dedications and direct equity investments represent a few of the ways in which local governments participate in this type of real estate development (Krumholz 1999).

Since public-private partnerships involve contractual agreements between real estate developers and government entities, the parties involved have a great deal of discretion when allocating rights, responsibilities and risks. This provides public officials with an opportunity to advance diverse policy goals, while being responsive to economic and political factors that exist within their communities (Sagalyn 1997). Unfortunately, the flexibility comes at a price and serves as one of the principle criticisms of public-private partnerships. Local governments are often accused of having neither the business acumen to successfully negotiate with the private sector, nor the human resources to monitor the activities of real estate developers after partnerships are formed. Profit maximizing developers acting within the confines of bounded rationality may therefore negotiate inequitable terms and engage in rent-seeking behavior, as would be predicted by transaction cost economics (Nijkamp et al. 2001, Moschandreas 1997). These factors have the potential to result in the formation of one-sided contractual agreements that favor the private sector.

The pervasiveness of public-private partnerships involving real estate development offers some evidence that public administrators have learned to manage transaction costs through professional development activities and the retention of outside counsel (Chapin 2002). Even so, there are other issues that must be considered when evaluating these projects. Some scholars, such as Chapin (2002), contend that municipalities have adopted a capitalistic mindset, manifested by a willingness to invest public dollars in speculative ventures such as the construction of entertainment complexes, cultural facilities and mixed-use venues. The risk inherent in these projects compels the public sector to be conscious of financial returns and evaluate investment alternatives in a manner nearly identical to that of profit-driven real estate development firms. Such behavior is potentially problematic in a representative democracy for a number of reasons.

Ghere (2001) frames the public-private partnership debate as one in which local governments must give up equity, due process and accountability in government to achieve efficiency gains. These outcomes occur because municipalities interested in attracting private sector partners are forced to pursue projects with the highest profit potential, rather than those likely to generate substantial social returns. Likewise, public officials may have little incentive to include a large number of stakeholders in the policy discourse if the range of options is limited to those that can generate an adequate short-term return on investment. These constraints create questions as to whether public-private partnerships can consistently achieve social policy goals.

Purcell (2009) expands upon this critique of public-private partnerships by interpreting their popularity as evidence of neoliberalism's hegemonic position in urban policy, where local governments are not only encouraged to allow market forces to allocate societal resources, but also to actively seek out opportunities to assist business interests in profit-driven endeavors. The author challenges the wisdom of this ideology by discussing two shortcomings that threaten its stability in urban planning. Unwavering reliance on market mechanisms is anticipated to result in severe inequalities in the allocation of municipal resources, while the outsourcing of government functions to the private sector is expected to create informal governance processes that lack accountability to the general public. Both of these factors undermine the legitimacy of public-private partnerships within a representative democracy.

Ensuring that multiple stakeholders participate in the formation of public-private partnerships is dismissed by Purcell (2009) as an effective means of promoting social equity. Real estate developers and public officials embracing the neoliberal agenda are anticipated to make only modest concessions to stakeholder groups to move projects forward without addressing fundamental concerns about the equitable distribution of municipal resources. Austin and McCaffrey's (2002) analysis of the role of business leadership coalitions in public-private partnerships provides some support for the position. The research is grounded in urban regime theory and assesses the characteristics of business leadership coalitions that allow them to maintain their status as preferred partners of local government. Business elites are found to participate in partnerships that focus on issues other than economic growth in order to maintain their status in urban regimes. Thus, many public-private partnerships are capable of promoting select social policy goals, but not those that directly conflict with financial interests of business elites.

The results of the studies summarized above indicate that there are a number of unanswered questions about the use of public-private partnerships to stimulate real estate development. First, it remains unclear whether those involved in the practice and study of urban planning are generally supportive of these collaborative arrangements. Second, the perceived importance of stakeholder...

To continue reading

FREE SIGN UP