1 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin CHAPTER 9 DETERMINING LAND USE Real Estate Markets: –allocate existing space –supply and adapt space to meet changing needs Two Land-Use Principles: –As transportation costs increase, the value of land tends to decrease relative to similar parcels with lower transportation costs. –As land prices increase, capital investment intensifies.

2 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin DETERMINING LAND USE The Market Solution –Although market forces tend to produce groups or patterns of land uses, economic advantage may also accrue to competing and inharmonious land uses. Externalities –negative externalities –positive externalities

3 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin PRIVATE RESTRICTIONS Land use restrictions can take the form of restrictive covenants and easements in deeds and subdivision plats. Two limitations of private restrictive covenants include: –enforcement, and –geographic scope.

4 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin PUBLIC PLANNING FOR LAND-USE CONTROL Public land-use planning involves the development of guidelines and criteria for the determination and control of future land uses in a community, or geographic area. –development of a comprehensive plan Planning Flexibility –PUDs –performance zoning

5 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin PUBLIC ZONING FOR LAND-USE CONTROL Zoning is the regulation of land uses, population densities, and building types and sizes by ordering the uses of land according to zones, or special districts –Construction quality & safety issues are regulated by building codes, fire codes, or health & safety standards. –Zoning is intended to control negative externalities.

6 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin PUBLIC ZONING FOR LAND-USE CONTROL Legality of Zoning The Taking of Issue Inverse Condemnation

7 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin INCONSISTENCIES WITH PRIVATE MARKET OUTCOMES Land use planning and zoning attempt to control growth and minimize externalities; however, they may have unintended consequences. –property value effects –congestion –urban sprawl

8 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Growth Management Communities and states, particularly those experiencing rapid growth, have attempted to “manage” growth in order to maintain adequate levels of infrastructure and service. Methods include: –adoption of comprehensive plans –concurrency and growth impact fees –economic and environmental impact studies –urban service areas, extraterritorial jurisdictions –growth limits and moratoriums

9 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin New Urbanism New urbanism represents one method advanced to “remedy” some of the typical problems that accompany urban growth (i.e., crime, congestion and isolation). Design tenents include: –small front-yard setbacks with front porches –narrow residential streets –mixed-use (commercial / residential) development

10 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin ENVIRONMENTAL HAZARDS Government Regulation –federal, state, and local responsibilities –owners responsibilities Types of Hazardous Materials Include: –asbestos, fiberglass, polychlorinated biphenyls (PCBs), leaking underground storage tanks (LUSTs), lead paint, and radon.

11 Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin ENVIRONMENTAL HAZARDS Implications for Real Estate Investors –Prospective investors, developers and lenders generally require environmental risk assessments. Types of Environmental Risk Assessments –Phase I EVA –Phase II EVA –Phase III EVA