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Chapter 12. Land Rents and Land Use Patterns

This document discusses land rents and land use patterns. It defines different types of land rents and explores how demand for land is determined by factors like accessibility, expected rent increases, and conversion costs. It also examines bid rent curves and how they shape intraurban land use and the development of polycentric and edge cities. The capitalization process and use of hedonic pricing models to value amenities and disamenities are also summarized.

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Mega Novetrishka Putri
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192 views20 pages

Chapter 12. Land Rents and Land Use Patterns

This document discusses land rents and land use patterns. It defines different types of land rents and explores how demand for land is determined by factors like accessibility, expected rent increases, and conversion costs. It also examines bid rent curves and how they shape intraurban land use and the development of polycentric and edge cities. The capitalization process and use of hedonic pricing models to value amenities and disamenities are also summarized.

Uploaded by

Mega Novetrishka Putri
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Land Rents and

Land-use Patterns
Chapter 12

1
Definitions of Rent
Land rentpayment for using land as an input
Site rent (ground rent)earnings associated with a
given location (monopoly rent,)
Improvement rentearnings due to building, fertilizer,
accessibility
Contract renttenants pay to landlords
Economic rentthe payment above the
minimum required to keep a production factor in
a specific occupation/industry (any input can
earn rents, not just land)
2
Traditional land market
Supply of land perfectly inelastic
Land Rent is function of demand, and thus
an Unearned Increment
Corollary:
If there is no land rent, ground still exists
Government can tax 100% of land rent with
no impact on output
Taxing land rents is neutral tax (Henry
George)

3
Land market with perfectly
inelastic supply of land

4
Economic land
Increased land rents allow more land to be
cleared or used for production of specific output.
Local planning agencies can manipulate the
amount of land usable for particular purposes
via zoning
Thus the supply of land is partly upsloping.
Price-determined rentpure rent
Price determining rentarea below tipping price and
above supply curve for land

5
Land market showing pure rent
and improvement rent

Tipping
price

6
Demand for land
Non-residential demand is function of
Value of cleared agricultural land
Conversion cost
Value of accessibility
Present value of future expected rent
increases (growth premium)

7
Present value formula
T A
PV
t 1 1 r
t

where A is the expected yearly net income


generated in a specific location, and
r is the interest rate.
The summation sign, , means that we add up
the present value for every year starting from
year 1 and going through year T, the last year
we expect to own the property.
8
Present Value: example
Assumes net income per year is $10,000
Interest rate is 6%
Land owner will sell property in 5 years for
$50,000
5
10,000 10,000 10,000 10,000 10,000 10,000 50,000
PV
t 1 1.06 1.06 1.06 1.06 1.06 1.06 1.06
t 1 2 3 4 5 5

9,433.96 8,899.96 8,396.19 7,920.94 7,472.58 37,362.91 79,486.55

9
Bid-rent functions and
monocentric model
CBD is market center
Bid-rent function shows the amount of rent
required from each type of user at each
distance from city center
Normal rates of return to each industry
Bid-rent functions require equal profits
from firms competing for a location closest
to CBD
10
Intraurban land use
Bid-rent curves are steepest
if land can be easily substituted for capital
the more expensive the cost to transport the product
Accessibility and face-to-face contact is important
the more fertile/profitable the location
Commercial bid-rent curves steepest
Agricultural bid-rent curves flattest
Bid-rent gradient shows maximum amount of
rent going to landowners regardless of land use

11
Residential location
Household utility is function of
Housing quality, size of structure and lot
Neighborhood amenities, green spaces
Transportation costs (inverse relationship)
Composite good (everything but housing)

12
Rent gradient

13
Polycentric urban model
Land rents decrease with distance
from CBD, and
from secondary employment centers on
outskirts of town

14
Bid-rent functions for
polycentric city

15
Edge cities (Garreau, 1991)
No governing structure, no specific
boundaries
Primary destination for entertainment,
shopping, recreation
Formation:
Residences migrate to edge of city
Shopping centers locate near residences
Factories and office complexes locate near
labor source

16
Tysons Corner, CDP

17
Results of urban growth
Land prices increase in the city
The city expands in to the rural areas
Rural areas adjacent to the city growand
land prices increase
Urban growth follows transportation
corridors

18
Capitalization process
Amenities and sound local fiscal policies create
attractive environments and people want to
migrate to the area
Demand for land increases (and the land rents rise)
Supply of labor increases, possibly decreasing wages
Relocation continues until the value of the benefits
from living in an area is capitalized into the value of
the land.
Negative externalities cause land values to fall.

19
Hedonic prices
Method of calculating the values of amenities
and costs of disamenities.
Dependent variable: price of land
Independent variables:
Indicator (dummy variables) describing neighborhood
attributes
Lot size
Access to public services
Proximity to amenity/disamenity
Coefficients reflect the market value of the
characteristics.

20

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