Academic journal article The American Journal of Economics and Sociology

Land Value: Seven Major Questions in the Analysis of Urban Land Values

Academic journal article The American Journal of Economics and Sociology

Land Value: Seven Major Questions in the Analysis of Urban Land Values

Article excerpt

Introduction

Investigations into land value reported in the recent literature merely rehash the same concepts from three centuries earlier when land was primarily agricultural. While the basic explanatory elements of classical urban models certainly help one to understand land value patterns, they do not provide satisfactory answers. Such explanations usually refer to notions of spatial equilibrium, homogeneity, and continuity, whereas the crux of the matter is actually about disequilibrium, dissymmetry, and discontinuity.

In the context of most built-up cities where more than ever before the land market is progressively disappearing, land value is becoming ever more an elusive concept. We often do not even pay attention to the appropriate value of the land parcel, which seems to be "lost" under the buildings or "merged" with them to create a form of capital known as "real estate." (1)

While the literature on land value and its valuation is extensive, there is unfortunately a certain disorder and vagueness. One can look at any paper on--and/or relating to--land value, and note that responses to one or more of the following questions (referred to as the 7Wh's in this article) are entirely or, often, partially overlooked.

1. What is the type of land under study?

2. When is the land value being assessed?

3. Where is the land located?

4. Which method of valuation is appropriate?

5. Why care about land value?

6. Who are the actors in the land market?

7. Whatever the explanations, are they enough?

A careful analysis of these 7Wh's becomes much more relevant for an accurate measurement of urban land value. Despite its "silence" and apparent "invisibility," land value continues to shape the dynamics of real estate markets. This is a serious practical concern, for instance, to millions of Americans who experienced its severe effects during almost the last two decades of housing booms and consequent busts. Based on a large amount of data on the housing market for 46 large U.S. metropolitan areas from 1984 to 2004, Davis and Palumbo (2008) pointed out that the remarkable evolution of land value is more significant than we are inclined to believe: by 2004 land value accounted for about 51 percent of the total market value of housing, up from 32 percent in 1984. Recent data published by the Wisconsin School of Business substantiate these increases, showing also dramatic decreases by the year 2009, varying notably across metropolitan areas. (2)

This article explores each of the 7Wh's and leaves the readers to examine what they would do based on the explanation of the problem, review of related concepts, and description of some practical situations. As the crucial theoretical and practical foundation pieces of the land value puzzle are dispersed throughout an extensive (and somewhat confusing) literature, it also brings them together in a strict articulation. (3) Authors of potential manuscripts on the subject of urban land value and valuation (as well as their reviewers) may also find this study particularly useful as a kind of check-list of questions to be addressed.

What Is the Type of Land Under Study?

Intuitively we think of land as a subdivision of the planet we live on. But, asking the question what "land" means will most probably provoke widely differing answers, sometimes very complex. Due to the existence of a variety of definitions, the difficulty in clearly defining land often results in a failure to use any one of them consistently. Even if the challenge of defining land is sometimes acknowledged at the beginning of a given study, in many cases, the term ends up being used loosely as if all types of land have the same meaning.

The different kinds of definition and categorization of land vary according to the discipline (for different ways land is categorized, see, for instance, Duhamel 1998; Fitzsimons and Wescott 2004). …

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