Transcript Chapter No. 4 Urban Land Values, Transportation Costs

Chapter 4
Urban Land Values,
Transportation Costs Impact
and the Urban Form
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Major Topics
 How transportation costs and productivity
affect land values in a city
 Why and how a freely functional
competitive land market will lead to land
being used at its “highest and best use”
 The impact of population growth, transport
nodes and regulation on land values and
density
 The nature and cause of the major
characteristics of the urban form of the
typical American city, and how this form
has been changing
 The nature of competition between central
cities and suburbs for residents and
business
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
The old Real Estate cliché
Only three things matter in real estate:
 LOCATION
 LOCATION
 LOCATION
Maybe today it is
Location
Location
Bandwidth
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Urban Form
Physical spatial characteristics of a city
 Size
 Population density
 Density variation in different parts
A steep
urban form
with a
central
focus of
intense land
use and
value
Value
A sprawled urban
form with multiple
focus points and
more even land
values.
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Residual Nature of Land Value
 Four basic “factors of
production
 Labor, capital and raw materials
are “mobile” factors
 Land is not “mobile”
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Transportation Costs
 A major reason for differences in land
value from one location to another.
 Transport costs are part of “mobile”
costs, hence lower transport cost =
higher land value
 When the highest and best use of
land wins the site the aggregate
transportation costs are minimized
for the market as whole
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
The “Bid-Rent” Curve
 The “bid-rent” is the maximum rent
that a potential user would be willing
to pay for a site or location – below
we have a monocentric city.
Bid-Rent Functions of Three Land Uses With
Differing Productivity & Sensitivity to Transport Cost
Land Rent
A
B
C
Center
Zone of Use B
Distance from Center
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Changes in Productivity Influence
Value Across Space Equally
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Changes in Transportation Costs Influence
Value More as Distance Increases
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Distortion of Land Use Patterns:
Polycentric or Multiple Nuclei Cities
 Real world cities are not purely monocentric, they
have other major activity areas (MACs) besides the
CBD.
 Large cities are sprinkled with neighborhood
business districts (NBDs) that serve needs of local
communities
Suburban retail
and office cluster
NBD
CBD where land
value is highest
NBD
Multiple clusters of
economic centers
CBD
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
NBD
Impact of Highways on Land Values
Below is a land value isoquant
Clustering Land Uses into
Sectors and Zoning
 Originally aimed at minimizing negative
externalities from one land use towards
another by grouping similar land use
together
 Such clustering and separation of uses
tends to increase transport costs and
encourage “sprawl”, i.e. lower densities of
land use
 Currently only planned communities are
able to circumvent traditional zoning
regulations
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Consider Population Changes and Land
Use Regulation or Constraints
First a monocentric city showing
land rents
Then impose boundary
constraints on a growing city
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
A Cross-Section of Land
Rents
L
L
C
C
A
A
B
CBD
A = Agricultural Rent
C = Construction Rent
L = Location Rent
CBD = Central Business District
B = Urban Boundary
B
If the city grows but is constrained rents will push up in
the central area within the boundary.
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
The New Smart Growth Rhetoric
1.How can you argue against
“smart”?
2.Growth boundaries increase
central land values as an area
grows but it also makes it more
expensive for future residents.
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
Market Solutions to Traffic
Congestion and Pollution
 Cities and counties could encourage
walkable communities with flexible
mixed use cluster zoning and green
buildings
 Incentives to developers to consider
smarter planning… viz. faster
processing of zoning change
requests, assistance with infill land
assembly etc.
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
The Growth of Suburbia…
 Factors contributing to the
dispersion of the urban core
are:
Decrease in the price of cars
Building of the Interstate system
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
… And why this is a problem
for local governments
 Governmental and public services of the
central city are usually not decreased in
line with fewer residents
 In most American cities, the middle and
upper income population has largely left
the central urban core, placing most
purchasing power in the suburbs
 Increased transportation costs caused by
traffic congestion further disperses
households and jobs
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner
END
“Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner