Best Land Use with Negative Externalities: Determining Land Values from Residential Rents
When land regulations are binding, then the land price per m2 is determined by the attractiveness of the location and the restrictiveness of the regulation. In the case of a maximum oor area ratio (FARmax) restriction, the best use land price can be directly expressed as a function of the FARmax and local amenities. We show theoretically and empirically how this approach can be used to determine land values from residential rents. From our empirical results, we derive two main sources for a monocentric structure of land prices. First, the location attractiveness of centrally located dwellings makes land prices more expensive. Second, on a regulatory basis, the FARmax works as a multiplier for land prices. Because the FARmax is high in central areas, land prices are inated accordingly. Our model gives insight into determinants of urban land prices. In addition, it is a useful approach for land appraisal in urban regions.
|Date of creation:||Apr 2017|
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- Jens Kolbe & Rainer Schulz & Martin Wersing & Axel Werwatz, 2012.
"Location, Location, Location: Extracting Location Value from House Prices,"
Discussion Papers of DIW Berlin
1216, DIW Berlin, German Institute for Economic Research.
- Kolbe, Jens & Schulz, Rainer & Wersing, Martin & Werwatz, Axel, 2013. "Location, location, location: Extracting location value from house prices," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79732, Verein für Socialpolitik / German Economic Association.
- Jens Kolbe & Rainer Schulz & Martin Wersing & Axel Werwatz, 2012. "Location, location, location: Extracting location value from house prices," SFB 649 Discussion Papers SFB649DP2012-040, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
- Joshi, Kirti Kusum & Kono, Tatsuhito, 2009. "Optimization of floor area ratio regulation in a growing city," Regional Science and Urban Economics, Elsevier, vol. 39(4), pages 502-511, July.
- Doina Chichernea & Norm Miller & Jeff Fisher & Bob White & Michael Sklarz, 2008. "ACross-Sectional Analysis of CapRates by MSA," Journal of Real Estate Research, American Real Estate Society, vol. 30(3), pages 249-292.
- Barr, Jason & Cohen, Jeffrey P., 2014. "The floor area ratio gradient: New York City, 1890–2009," Regional Science and Urban Economics, Elsevier, vol. 48(C), pages 110-119. Full references (including those not matched with items on IDEAS)
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