What do Planners Mean When They Refer to Highest and Best Use?

For decades the principle of Highest and Best Use has guided town/city/township/county councils and their municipal planners and economic development offices. To paraphrase Sir Winston Churchill, “It is the worst possible system except for all the others.” It can be defined this way—

“Highest and best use for a property is achieved when the value created by its development for a specific set of physically possible, permitted uses (its functional program) and a particular form of structure combine to produce the highest present value of rents over the economic life of a project,” Bruce M Firestone.

Since the beginning of civilization, many models have evolved as organizing principles for villages, towns, cities and regions. The first villages were founded by a handful of families joining together for mutual protection. Serendipitously, they discovered that a division of labour could increase the wellbeing of their village. Those who were more skilled at, say, farming did more of that while those who were better hunters, gatherers, flint knife carvers or textile producers specialized in those tasks. The result was a marked improvement in the wealth of the village from intra-village trading. Over time, a surplus may have developed in one village leading to trade with other nearby villages which had their own specializations. Regional trading blocks emerged, prompting faster growth and eventually the development of city-states, which in turn led to the formation of nation-states.

As cities, towns and villages grew, the problem of how to efficiently organize them became more pronounced. How to rid budding urban area of wastes, where to place dirty industry, how to bring products and services into and out of a town for a growing numbers of artisans and guild members, how to best protect citizens from external attack and internal predators, how to move people and their domesticated animals safely within the city, how to gather people together for religious observances, markets and entertainment, where to put courts, jails and schools, where to locate government officials, judges, kings and queens, emperors, their subjects and nobles—these are some of the questions regional governments have wrestled with for millennia.

Spatial organization of cities, towns or villages and their hinterlands has, at various times, been based on: a) religious or other hierarchical systems, b) defense principles, c) royal edict, d) class or race based systems, e) guild based separation, f) master planned community consistent with zoning codes or combinations of the above.

Structuring cities based on the principle that each individual parcel should be put to its highest and best use is an idea that has come into prominence over the last century. The highest and best use for a particular piece of land is that use or combination of uses that produces the highest land rents. This is derived from a comparative analysis of the costs and benefits of alternative projects; the project that produces the highest IRR (Internal Rate of Return) is arguably the right use for a subject property. It presumably also produces the highest land rents too.

This rule can also be thought of as the ‘DAD rule’– Dollars are Democrats rule. The DAD rule suggests that those persons or organizations which have the where-with-all to develop a parcel to its highest and best use will also be those willing to pay the highest price for the lands or the highest land rent. This means that: a) land supply will be rationed using a price mechanism, b) anyone can participate irrespective of race, creed, gender, religion or sexual orientation and c) lands will be used efficiently at the greatest intensity and density of use.

That land is a limited resource and should be used efficiently seems self-evident. However, it is remarkable how often neo-urbanists run into NIMBY (not-in-my-back-yard) trouble. Special interest groups often oppose further development of villages, towns, cities and regions, rejecting growth and increased density as well as more intensive uses* of lands often associated with that.

(*Intensity as opposed to density measures the degree to which mixed uses are found at any one location or within an individual project.  For example, a mixed use project that combines office, retail, entertainment and housing has a higher level of intensity than one that is solely residential or office-based.)

People may fear that urban growth, development and change increases congestion and lowers property values. However, allowing the highest and best rule to work in a de-regulated environment where a community consensus has been reached as to what constitutes sound, sustainable development will often produce more variegated, interesting, efficient and sustainable communities. It lowers the decibel count at town hall public meetings and leads to a better understanding of what constitutes excellence in urban design. Application of the highest and best use rule is subject to the constraints of building, health and fire codes.

Cities, towns, villages and regional economies are survival machines that produce the greatest good for the greatest number of their citizens; they allow people to exchange goods, services and ideas that best utilize individual skills of their residents to greatest effect. Cities make best use of scarce resources including land and infrastructure.

If we put our trust in the highest and best use principle subject to public safety codes (instead of overwhelming reliance on prescriptive zoning ordinances and official plans that are hopelessly out-of-date no matter how often they are revised because the global economy and stakeholder needs are changing far too fast), we can produce better towns, cites and regional economies that are more interesting places to live, provide more options and varying lifestyles at a higher level of efficiency.

James Howard Kunstler’s advice to local governments in Home from Nowhere is to, “Burn all your zoning codes.” Short of this, local governments that adopt proactive zoning codes (also called performance zoning) where everything is permitted unless expressly forbidden instead of traditional zoning where everything is forbidden unless expressly permitted, will develop an experimental environment where people can allow their creativity to flourish. Public safety codes and public input on things like site plan control will take care of nuisances and correct mistakes as well as improving overall urban design which should be, like any creative pursuit, an iterative process anyway.

Zoning change, official plan amendment, sub-division application, site plan control and other public processes can either be looked at as confrontations or as opportunity for affirmation of a project amongst stakeholders. A switch to performance zoning, negative property taxes (where neighbors pay for deleterious effects superimposed on adjacent property owners—these are called special assessment zones) and the use of public safety codes to greenlight, amend or stop a development will produce superior results in every way—including faster, more sustainable economic development and higher property tax revenues for local governments as well as more harmonious communities. 

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Highest and Best Use: A Guiding Philosophy for
Neo-Urbanist Designers

“Highest and best use for a property is achieved when the
value created by its development for a specific set of physically possible,
permitted uses (its functional program) and a particular form of structure
combine to produce the highest present value of rents over the economic life of
a project,” Bruce M Firestone

Since
the beginning of civilization, there have been many experimental models
developed as organizing principles for villages, towns and cities.

Early
on, the first villages were formed for the protection of a handful of families
who joined together for mutual protection. They may then have discovered that a
new division of labour would increase the well being of the village. Those who
were better skilled at farming, hunting, gathering, flint knife carving,
textiles would specialize in those tasks. The result was a marked improvement
in the wealth of the village from intra-tribe trading. So much so that over
time we can postulate a developing surplus in one village leading to trade with
other nearby villages with their own specialization. Thus begins the emergence
of regional trading blocks and the growth of the city-state, which eventually
led to the formation of nation-states.

As
these cities and towns and villages grew, the problem of how to efficiently
organize them became more pronounced. How to get rid of wastes, where to put
dirty industry, how to bring products and services into and out of the town for
growing guilds and artisans, how to best protect citizens, how to move people safely
inside and outside the city, how to gather people together for religious
observances, markets and entertainment, where to put the courts and jails,
where to locate government officials, judges, kings and queens, emperors, their
subjects and nobles- these were some of the questions town planners,
architects, developers and governments have wrestled with for millennia.

City
organization has been based on: a) religious or other forms of hierarchical
systems, b) FOB (Friends of the Boss – Mayor, Fire Chief, Chief of Police and
so forth), c) defense principles, d) royal or other types of fiat based systems
(master planning and zoning, for example), e) class or race based systems, f)
guild based forms or combinations of the above.

In
the last 100 years, we have developed a new system for structuring our cities,
which is based on the principal that each individual parcel should be put to
the highest and best use. The highest and best use for a particular piece of
land is that use or combination of uses that produces the highest land rents.
It may be that the actual implementation or interpretation of this rule is
modified by practioners of urban design to include both the costs and benefits
of a project in the form of a calculation of the highest rates of return from
the uses proposed. This presumably also produces the highest land rents too.

This
rule can also be thought of as the DAD rule- Dollars are Democrats rule. The
DAD rule suggests that those persons or organizations that have the
where-with-all to develop the parcel to its highest and best use will also be
those willing to pay the highest price for the lands or the highest land rent.
This means that: a) land supply will be rationed using a price mechanism, b)
anyone can participate irrespective of race, gender or religion, and c) lands
will be used efficiently at the greatest intensity and density of use.

That
land is a limited resource and should be used efficiently seems self-evident.
However, it is remarkable how often neo-urbanists run into the nimby mentality,
the not-in-my-back-yard syndrome. Special interest groups often decry the
spread of cities into the countryside (as ‘urban sprawl’) but react
vociferously against the concept of higher (‘build up not’) density which would
result in more efficient use of expensive infrastructure (roads, water mains,
sewers, etc.)

That
land use should not be based on discriminatory principals also seems
self-evident as well. Civilizations that have privileged, gated communities
based on income or other factors within their urban fabric are courting social
unrest and longterm instability. Perhaps it is possible to paraphrase Winston
Churchill that the ‘highest and best’ rule for organizing towns and cities is
the ‘worst possible system, except for all the others”!

The
‘modern’ alternative seems to be to place all our faith in all-seeing,
all-knowing master planners and zoners to dictate how cities can grow, change
and develop. This is just another form of FOB, Friends of the Boss, because
sophisticated developers and special interest groups can influence these plans
and change them as it suits them through the exercise of power. In the case of
the development industry, their power derives from the application of money to
enlist the best lawyers and consultants. In the case of community groups,
special interest groups and nimby’ites, this power derives from the application
of grass roots lobbying techniques, picketing, protesting, harassing, heckling,
anonymous letter writing, libeling, name calling, net-based scare mongering and
employment of activist lawyers, professional protestors and ‘instant’ experts.
They are at least as effective as the development lobby. Both are the wrong
method to produce excellence in urban design.

The
greatest world cities are ‘walk-about’ cities built for pedestrians with
abundant mixing together of uses and reasonably high densities. These cities
have grown ‘organically’ as layers of complexity are added over the decades and
centuries as hundreds and thousands of individual decisions are made based
(sometimes unconsciously, guided by Adam Smith’s invisible hand) on the
application of smart urban design principles, the existence of an underlying
consensus as to what constitutes good design and the use of the ‘highest and
best use’ philosophy.

The
highest and best use principle will produce a city that yields the greatest
good for the greatest number of people. What are our cities but survival
machines that allow people to exchange goods, services and ideas that best
utilize the individual skills of their citizens to greatest effect? It makes
best use of scarce resources including land and infrastructure and if we put
our trust in it subject only to fire, building and safety codes, we will
produce better towns and cites that are more interesting places to live,
provide more options and varying lifestyles at a higher level of efficiency and
defeat the forces that would base city planning on either arbitrary and
stultifying decisions of ‘master planners’ and zoners or the rule of the mob,
whether it is financed or championed by the development industry or nimby’ites.

Copyright. Dr. Bruce M. Firestone, Ottawa, Canada.
2000