Urban Land Value and Land Use

Urban Land Value and Land Use

by Yudo Anggoro, University of North Carolina at Charlotte

The economic value of any commodities and services is determined by its capacity to generate income. A crucial factor in the ability of land in a given location within urban area to generate income is transportation cost. In all industries, transportation cost is a significant part of production factor, so that lower transportation cost reflects higher net income to the industries. In this sense, location would play a major role since location determines the transportation cost of industries. For example, an office-based industry may minimize transportation cost by locating in the central business district (CBD) (Forkenbrock and Schweitzer, 2001).

In discussing transportation cost and location, it is important to pay attention to the model of urban form. One of the earlier types of urban form is monocentric urban model, which is one that develops around a single central business district. There are some factors that contribute to the development of this model, that are (Forkenbrock and Schweitzer, 2001): (1) cities grew near ports, canals, and railroad stations, as manufacturers and merchants sought out locations with good access to sources of raw materials and markets; (2) growth of the city could be attributed to the district locational advantage afforded by proximity to some central import or export node; and (3) businesses that provided services to manufacturers tended to locate near the factories, and workers would locate their residence as close as possible to the sources of employment, with retailers following them.

In a monocentric city, CBD has a comparatively high level of accessibility to other parts of the city. For office-based businesses, a central location is important to give easy access to their workers, customers, and other businesses with which they interact. They also can occupy tall buildings that make the land even more valuable because they allow more businesses and services to locate there and become easily accessible. In developed area, changes in land use values affect the intensity of land use. In CBDs, more intensive land use is reflected in taller buildings, smaller office spaces, and more compact stocking of products. As a consequence, tall-densely arranged buildings represent a substitution of capital for higher-priced land (Forkenbrock and Schweitzer, 2001).

Moving outward the CBD, the ability of industries to gain more profit is reduced due to the diminished access to the economic activity found at the city center. Therefore, the maximum these businesses would be willing to pay for land decreases with distance from the CBD. The rate at which land values for a specific type of land use diminish as distance from the city center increases is called the bid-rent curve.

Each type of land use has a bid-rent curve that has an intercept (representing the maximum bid to locate at the CBD) and a slope (representing the trade-off in willingness to pay for land with a certain level of accessibility to the CBD and the transportation costs from that land parcel to the center of urban activity). For land uses, willingness to pay drops off quickly as distance from the CBD increases because the potential for agglomeration economies and face-to-face contact diminishes. With less competition for land farther out, the price of land decreases, so that it may be used less intensively (Forkenbrock and Schweitzer, 2001).

The land-rent theory is the best single explanation of how transportation investments can affect urban form (Forkenbrock and Schweitzer, 2001). This theory posits that transportation costs are an important cost component for all industries. Locations that minimize costs are worth more, so competing industries bid what they can for these locations. Industries that are willing to bid the most for any given location will occupy it. The cheaper the cost of transportation, the less variability there will be in land prices, and the more scattered development will be.

In another type of urban form, for example in polycentric model where there are other centers of activity other than CBD, the concept of bid-rent curves still persists. The point is that as activity centers emerge, they attract more development, and bid-rent curves radiating from them become significantly higher than they were before the activity center existed.

If a city had a clear vision of its desired urban form, we can use transportation policy and transportation investment as tools for shaping land use patterns. In this regard, the transportation goal like efficient movement of traffic must be combined with development goals such as promoting the economic vitality of CBD, attracting economic activity to a growing suburb, or increasing residential density (Ewing 1993 in Forkenbrock and Schweitzer 2001).

A variety of accessible measures have been proposed to analyze transportation investment urban development goals. In the literature, accessibility can be defined as nearness to places, nearness to activities, and ease of participating in activities (Forkenbrock and Schweitzer, 2001). In this regard, accessibility is related to how it is easy to get from a given place, as well as how easy it is to get to that place from other locations.

Transportation investment is a product of transportation policy directives, local public policies, and economic forces (Forkenbrock and Schweitzer, 2001). It may consist of road widening, new roads, highway systems, urban bypasses, and parking facilities. A series of road investment can affect accessibility of urban form, and if a city knows what kind of urban form it seeks (polycentric, clustered, high density, corridor, or mixed), it can use transportation investments as an important tool to help it achieve this urban form.

In order to use transportation investment as a tool for land use planning, it is important for planners to predict how the changes in relative accessibility resulting from transportation investments are likely to alter urban land values, land uses, and development densities. Forkenbrock and Schweitzer (2001) offer their criterion for evaluating transportation investment in terms of its likely urban development effects, which are: (1) The development potential of individual parcels of land are differentiated by relative levels of accessibility; (2) The attractiveness of a parcel of land for a particular activity is the result of a tradeoff between land value and the costs of interaction (such as transportation cost); and (3) Location decisions are based on the comparative ability of a given type of activity to pay the cost of land at the most accessible locations.

Some obstacles or constraint might prevent city from achieving its desired results. These obstacles may include policies and mandates of higher governments, local political preferences, and other institutional and external forces.

Reference

Forkenbrock, D., S. Mathur and L. Schweitzer (2001) Transportation Investment Policy and Urban Land Use Patterns, Public Policy Center, Iowa City: University of Iowa.