Economics of urban land use

Introduction

Land is a major factor of production alongside labor and capital, and economic theory has been focusing on rent as the return obtained from land. Like other factors of production, land is scare and this can be attributed to growth in urban areas at high rates which has led to its extensive use and high prices as demand for this resource outruns its supply. In addition, the growth of urban areas is creating problems to the society across the world as concentration of people in urban areas increases. This has given rise to debate and research on the impact of changing use of land in urban areas and the need for optimal land use with an aim of solving such problems. Economic theories on land have largely concentrated on land use as a factor of production from an agricultural perspective while ignoring the issue of urban land use in terms of residential use and construction of central districts.  In recent times, the issue land use planning especially in urban areas has been receiving significant amount of attention as the need for optimal land use gains more importance.

Literature review

Land is an object that is endowed with two major characteristics which are land as a commodity and immobility of land. Every piece of land is related to a unique geographical location or space. Every household that relocates to a city is forced to select a residence, and this involves decisions set that is quite complex. This can be perceived as a trade- off challenge where space, accessibility and even environmental amenities are the main fundamental factors (Fujita, 1990).  In making this choice, households have to weigh the aforesaid factors in order to meet time and budget complaints.  Like any other consumer, the behavior of the household will aim at maximizing utility but within a given budget limit.   Land use in urban areas is categorized as either residential, office use or industrial areas for manufacturing firms. Residential use consists of single-family residences, mobile homes and multiple-unit dwellings and even mobile homes and is easily identified due to their nearness to roadways and urban centers.  The industrial areas consist of various types land uses and structures including heavy and light industry where processing, manufacturing and assembly of different products occurs. The office use of land encompasses spaces that contain structures that are majorly used for commercial and services, where selling of products and services takes place (Fujita, 1990). Given that land is normally fixed, it attracts stiff competition as manufacturers, offices and households strive for a share and are willing to for this asset up to the activities to be conducted on it. The price of a piece of land is determined by accessibility to work places, which in turn determines commuting costs, accessibility to suppliers and consumers and information accessibility (Fujita, 1990). Research on growing cities in various parts of the world indicates an increase in build up land use for the past almost three decades while at the same time other categories have been reducing.  A research focusing on major Asian cities of Ranchi, India and Gurgain and Jaipur shows the various changes relating to land use across the world driven by population pressure and economic growth (Gupta, 2014).

 With increased need for land in urban areas, land cost and competition for the same, attention has been focused on various effect of expansion of urban land and very heavy industrialization. The increased extension of land use can be attributed to heavy industrialization and resulting influx of population in urban . The end results has been an increase in residential land areas and the effect on human and environment has also been significant (Fujita, 1990).  The need for large-scale construction in urban areas has led to emergence of issue of land use efficiency and even optimization. Land use expansion has aimed at supporting the economic growth in different place especially in emerging economies like China where heavy construction on land for the industrial, commercial and residential purpose has defined the economic growth of these countries (Gupta, 2014). The governments in these countries have come up with policies aimed at regulating the use of this scarce resource and its optimization to ensure full economic impact.  

The development of urban land markets involve models that reflect an open-city or closed-city model with the later model taking income and population to somehow determining the outcomes of the markers.  The form tries to define the endogenous migration process of business and individuals in urban areas. This kind of migration reflects products and labor markets that are connected. The population resulting from this migration is the major determinant of the land area that has been developed or rather the size of the city or urban centre. In United States, there is always an increase in land rents at Central Business District as demand for such increase (Jaeger, 2013). The conditions for equilibrium for urban land market require price equilibrium to be present at the border line between use of agricultural land and urban land. The condition also requires the marginal utility to be equal for all the properties within a given city. Urban areas such as cities are most likely to be between the assumptions that they are not closed completely and not open entirely (Jaeger, 2013). These are two basic models of urban city models that have been used to define the land in these areas. However, the population factor is the most important determinant of the urban areas’ spatial scale and it normally varies in line with it. The regulatory limitations and geographic boundaries places limit on the extent of development concentration around a Central Business District and hence, places limit on the use of land in an urban center (Jaeger, 2013). In addition, land prices and value are largely determined by the population and income per capita even though any obstacle that may put limitations on development concentration is likely to result to increased prices from a specific distance from the urban center (Jaeger, 2013). The demand of land in an urban center and the size of that land determine its prices where other factors such as accessibility and distance from the urban center are not taken into account.  The government may place regulations on the use of land with an aim of controlling the development of an urban center.

 

 Optimization of land use focuses on maximization of total production of total consumption in urban areas. The distribution of residential and business land relates to residential densities and employment densities in urban areas, while optimal use of land is determined by commuting costs and other production externalities.  The trade-off experienced between these two aspects brings about optimal allocations which is different in terms of commuting costs amount and the level of external effects (Rossi-Hansberg, 2004). An optimal allocation attracts business in the land and accompanying employment wile high commuting cost is likely to results to many residential sectors and many businesses.  In many cities, optimum use of land is never achieved if residential and business sectors are mixed in one area. The need for government regulation in urban land use can be traced to the need to optimize the use of the resource while at the same time ensuring that minimal effects to human and environment occur (Rossi-Hansberg, 2004).

 

The regulations and interventions of government authorities have impact on the cities around the world.   Such regulations are mostly well-meaning and they are normally designed to attain some ends that are thought to be economically and socially desirable. In many cases, markets for real-estate markets are complex and therefore, the interventions normally results to subsidiary impacts that policy makers anticipates (Brueckner, 2009).  Urban growth limits is an example of such interventions, where a government draws a specific ring around the urban area while prohibiting any development beyond the ring. Another intervention involves development densities’ regulation with the aim of a lower density being achieved through a restriction on minimum lot –size where densities are limited in detached house areas so that every structure is surrounded by enough space. The various measures taken by governments are normally aimed at ensuring social-economic development of the community in the urban areas is attained (Brueckner, 2009).

References

 

Jaeger, W. K. (2013). Determinants of urban land market outcomes: Evidence from California. Land use policy, 30(1), 966-973.

 

Brueckner, J. K. (2009). Government land use interventions: An economic analysis. In Urban land markets (pp. 3-23). Springer Netherlands.

 

Rossi-Hansberg, E. (2004). Optimal urban land use and zoning. Review of Economic Dynamics, 7(1), 69-106.

 

Fujita, M. (1990). Urban economic theory: Land use and city size. Cambridge [Cambridgeshire: Cambridge University Press.

Gupta, R. (2014). The pattern of urban land-use changes: a case study of the Indian cities. Environment and Urbanization Asia, 5(1), 83-104.