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Highest and Best Use: The Evolving Paradigm

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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Article provided by American Real Estate Society in its journal Journal of Real Estate Research.

Volume (Year): 5 (1990)
Issue (Month): 1 ()
Pages: 17-32

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Handle: RePEc:jre:issued:v:5:n:1:1990:p:17-32
Contact details of provider: Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
Web page: http://www.aresnet.org/
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Order Information: Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
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  1. James R. Markusen, 1979. "Elements of Real Asset Pricing: A Theoretical Analysis with Special Reference to Urban Land Prices," Land Economics, University of Wisconsin Press, vol. 54(2), pages 153-166.
  2. Krumm, Ronald J., 1980. "Neighborhood amenities: An economic analysis," Journal of Urban Economics, Elsevier, vol. 7(2), pages 208-224, March.
  3. Ohls, James C. & Weisberg, Richard Chadbourn & White, Michelle J., 1974. "The effect of zoning on land value," Journal of Urban Economics, Elsevier, vol. 1(4), pages 428-444, October.
  4. C. F. Sirmans, 1976. "An Econometric Analysis of Urban Travel Behavior Between Residence and Work Site," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 4(2), pages 19-31.
  5. Grieson, Ronald E, 1973. "The Supply of Rental Housing: Comment," American Economic Review, American Economic Association, vol. 63(3), pages 433-36, June.
  6. Terry V. Grissom & Ko Wang & James R. Webb, 1992. "The Spatial Equilibrium of Intra-Regional Rates of Return and the Implications for Real Estate Portfolio Diversification," Journal of Real Estate Research, American Real Estate Society, vol. 7(1), pages 59-72.
  7. Donald C. Guy & John L. Hysom & Stephen R. Ruth, 1985. "The Effect of Subsidized Housing on Values of Adjacent Housing," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(4), pages 378-387.
  8. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  9. Winger, Alan R, 1969. "Regional Growth Disparities and the Mortgage Market," Journal of Finance, American Finance Association, vol. 24(4), pages 659-62, September.
  10. Terry V. Grissom & David Hartzell & Crocker H. Liu, 1987. "An Approach to Industrial Real Estate Market Segmentation and Valuation Using the Arbitrage Pricing Paradigm," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(3), pages 199-219.
  11. Wang, Ko & Grissom, Terry V. & Webb, James R. & Spellman, Lewis, 1991. "The impact of rental properties on the value of single-family residences," Journal of Urban Economics, Elsevier, vol. 30(2), pages 152-166, September.
  12. Roger E. Alcaly, 1976. "Transportation and Urban Land Values: A Review of the Theoretical Literature," Land Economics, University of Wisconsin Press, vol. 52(1), pages 42-53.
  13. Solow, Robert M. & Vickrey, William S., 1971. "Land use in a long narrow city," Journal of Economic Theory, Elsevier, vol. 3(4), pages 430-447, December.
  14. C. F. Sirmans & Arnold L. Redman, 1979. "apital-Land Substitution and the Price Elasticity of Demand for Urban Residential Land," Land Economics, University of Wisconsin Press, vol. 54(2), pages 167-176.
  15. Dennis R. Capozza, 1976. "Forecasting Long-Run Land use Patterns with an Aggregative Model of Urban Housing and Transportation: The Case of Los Angeles," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 4(1), pages 23-39.
  16. Homer Hoyt, 1964. "Recent Distortions of the Classical Models of Urban Structure," Land Economics, University of Wisconsin Press, vol. 40(2), pages 199-212.
  17. Douglas B. Diamond, Jr., 1980. "The Relationship between Amenities and Urban Land Prices," Land Economics, University of Wisconsin Press, vol. 56(1), pages 21-32.
  18. Mingche M. Li & H. James Brown, 1980. "Micro-Neighborhood Externalities and Hedonic Housing Prices," Land Economics, University of Wisconsin Press, vol. 56(2), pages 125-141.
  19. Smith, Barton A., 1978. "Measuring the value of urban amenities," Journal of Urban Economics, Elsevier, vol. 5(3), pages 370-387, July.
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