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: Maybe today it is Location Bandwidth LOCATION LOCATION LOCATION “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 sprawled urban form with multiple focus points and more even land values. A steep urban form with a central focus of intense land use and value Value “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. A B C Distance from Center Center Zone of Use B Land Rent Bid-Rent Functions of Three Land Uses With Differing Productivity & Sensitivity to Transport Cost “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 CBD where land value is highest Multiple clusters of economic centers Suburban retail and office cluster   NBD NBD CBD NBD “Real Estate Principles for the New Economy”: Norman G. Miller and David M. Geltner

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 CBD B B A = Agricultural Rent C = Construction Rent L = Location Rent CBD = Central Business District B = Urban Boundary 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 How can you argue against “smart”? 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