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Highest and Best Use: The Evolving Paradigm

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Abstract

Highest and Best Use is often identified as the key concept supporting real estate use and value decisions. However, at best the concept has received ambiguous if not conflicting consideration as to its relevance in the literature of economics, finance, real estate, appraisal, and other areas of study concerned with land use decisions and valuation. This paper addresses this ambiguity and identifies the theoretical premises of Highest and Best Use as employed in the various land use disciplines. The theoretical foundations as they are synthesized form the basis of a formal constrained optimization model for land use decisions. The model's logic identifies the need to include the cost of capital and location along with the physical, legal, infrastructure, and market parameters discussed in the bulk of the economic and appraisal literature (including courses and professional practice). The financial and locational variables are needed in order to advance the use paradigm to fit current context of problems facing real estate decisionmakers.

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  • Mark G. Dotzour & Terry V. Grissom & Crocker H. Liu & Thomas Pearson, 1990. "Highest and Best Use: The Evolving Paradigm," Journal of Real Estate Research, American Real Estate Society, vol. 5(1), pages 17-32.
    • Handle: RePEc:jre:issued:v:5:n:1:1990:p:17-32
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    1. David Geltner & Anil Kumar & Alex M. Van de Minne, 2020. "Riskiness of Real Estate Development: A Perspective from Urban Economics and Option Value Theory," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 48(2), pages 406-445, June.
    2. Maria Rosaria Guarini & Pierluigi Morano & Alessandro Micheli & Francesco Sica, 2021. "Public-Private Negotiation of the Increase in Land or Property Value by Urban Variant: An Analytical Approach Tested on a Case of Real Estate Development," Sustainability, MDPI, vol. 13(19), pages 1-30, October.
    3. Serena Artese & Manuela De Ruggiero & Francesca Salvo & Raffaele Zinno, 2021. "Economic Convenience Judgments among Seismic Risk Mitigation Measures and Regulatory and Fiscal Provisions: The Italian Case," Sustainability, MDPI, vol. 13(6), pages 1-25, March.
    4. Steven C. Bourassa, 1993. "The Rent Gap Debunked," Urban Studies, Urban Studies Journal Limited, vol. 30(10), pages 1731-1744, December.
    5. Jeffrey D. Fisher & George H. Lentz & K.S. Maurice Tse, 1992. "Valuation of the Effects of Asbestos on Commercial Real Estate," Journal of Real Estate Research, American Real Estate Society, vol. 7(3), pages 331-350.
    6. Dunning, Richard J. & Moore, Tom & Watkins, Craig, 2021. "The use of public land for house building in England: Understanding the challenges and policy implications," Land Use Policy, Elsevier, vol. 105(C).

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    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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