Price-making of greenfield land: Determining institutional factors

Land price models have failed to explain and predict land prices in a satisfying way (Kauko, 2004). This article reaches an explanation for this inherent deviation between model and reality by focusing on the uniqueness of each transaction, including both the uniqueness of what is subject to transaction as well as the transaction process. Land transactions are coordinated by price, rules and trust in respectively markets, hierarchies and networks (Needham & De Kam, 2004). The formal and informal institutional contexts differ for each transaction due to these variety of coordinating mechanisms. For example arrangements made within networks are affected significantly by the degree of trust between actors (Adams, Leishman & Watkins, 2011). Furthermore, the uniqueness of land transactions is increased by the fact that not only land is subject to transaction. Most often transactions include partial rights and additional arrangements which might influence the transaction price. This article presents the statistical analysis of the available land transactions (450) in the period from 1998 to 2005 within three Dutch city regions. This article sheds light on land price influencing factors. Per transaction data is gathered about ìòstandardí determining factors like location, size and fertility but also about institutional factors like coordination mechanism, additional contract arrangements, the exchange of partial rights, the exchange of land and real estate and transactions of several plots within one price. Conclusions will be drawn regarding two main questions. First, to what extent do specific institutional factors matter in the land price-making process? Second, to what extent can we speak of plain land prices considering that institutional factors make almost every land transaction unique? Adams, D., Leishman, C., & Watkins, C., 2011. Housebuilder Networks and Residential Land Markets. Urban Studies, 16. Kauko, T. J., 2002. Modelling the Locational Determinants of House Prices: Neural Network and Value Tree Approaches. Utrecht: Utrecht University. Needham, D. B., & Kam, G. de., 2004. Understanding How Land is Exchanged: Co-ordination Mechanisms and Transaction Costs. Urban Studies, 41(10), pp.2061-2076.