Land pricing on extension of leases in public leasehold systems

Public leasehold systems are highly contested when it comes to the extension of leases. Public leasehold systems often aim to capture land value gains, but this tends to be more difficult in practice than foreseen. Value capture by authorities, as intended by the system, results in counter movements of lessees that often gain public support to set lower leases. These political processes may even result in an end to these public land leasing systems. Based on a review of scientific literature on international experiences with extension of leases, a reflection is taken on the Dutch experience of lease extensions in Amsterdam and on the Wadden Islands. This reflection will be based on the use of the classical supply curve, which indicates that suppliers are willing to supply a higher volume of goods if the prices are higher. This willingness to supply by a potential supplier depends ideal typically on the supplier’s cost of producing the good. Supply of land in a public leasehold system in the case that leases are extended works a little different from this ideal type. Here it is the public owner that is the sole provider of leasehold land. In cases like this there may be a gap between the lease proposed by the technical advisors of a public landlord, which is based on the residual value of the land, and the lease that is considered to be acceptable in the political context in which a public leaseholder operates. Property markets anticipate on this gap by transaction prices of leasehold properties that do not fully take into account the extension lease as based on residual value in mind. The analysis of this paper is relevant for leasehold systems and other systems of temporary land use, including the land use rights in China, for which an extension may be due. It is also relevant for studying pricing in markets in which the public authority operates and may be informed by public aims in its setting of prices.