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The effects of changes in land value on the value of buildings

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  • Tideman, Nicolaus
  • Plassmann, Florenz

Abstract

We show that increases in land value generally lower the value of existing buildings by amounts roughly proportional to the square of the difference in size between the existing building and a new building of optimal size. Our model suggests that the sight of deep discounts for space in new buildings in a growing city is not necessarily a sign that developers have overestimated demand; it might rather reflect their anticipation of continued urban growth. Our model offers an intuitive way of dividing property values between the land and the structures on it, which is relevant for establishing the appropriate base for taxes on land rent, for identifying the correct income tax deductions for depreciation, and for assessing appropriate amounts of property insurance.

Suggested Citation

  • Tideman, Nicolaus & Plassmann, Florenz, 2018. "The effects of changes in land value on the value of buildings," Regional Science and Urban Economics, Elsevier, vol. 69(C), pages 69-76.
    • Handle: RePEc:eee:regeco:v:69:y:2018:i:c:p:69-76
    DOI: 10.1016/j.regsciurbeco.2018.01.005
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    Cited by:

    1. Rémy Le Boennec & Julie Bulteau & Thierry Feuillet, 2022. "The role of commuter rail accessibility in the formation of residential land values: exploring spatial heterogeneity in peri-urban and remote areas," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 69(1), pages 163-186, August.
    2. Braun, Stefanie & Lee, Gabriel S., 2021. "The prices of residential land in German counties," Regional Science and Urban Economics, Elsevier, vol. 89(C).
    3. Erez Buda & Dani Broitman & Daniel Czamanski, 2021. "Urban Structure in Troubled Times: The Evolution of Principal and Secondary Core/Periphery Gaps through the Prism of Residential Land Values," Sustainability, MDPI, vol. 13(10), pages 1-12, May.

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    More about this item

    Keywords

    Residual; Transportation improvement; Urban growth;
    All these keywords.

    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • R52 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Land Use and Other Regulations

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