Land values are an underdiscussed (outside of a small corner of economists and nerds) but important topic we should want more planners, policy analysts, politicians and the general public to understand.
Good post. It’s also worth mentioning the impact of the rapidly rising development contributions on land values which is putting downward pressure and in some cases making new development unfeasible.
Hi Stephen, thanks for your comment. Agree there is a lot going on in that space. I wanted to keep this more general but I may cover that specifically in future.
"You would expect to see reasonably flexible commercial activities with lower returns, like car yards and storage units, be located in areas of low land values."
Why is the Christchurch central city, particularly St Asaph St, just a collection of car yards?
Hey Peter, this is a good question. I think there are multiple factors, generally quite low land values, earthquakes destroying much of the existing residential/commerical stock in central Christchurch leading to a lot of undeveloped land, outwards growth post quakes etc.
This piece from Talking Transport highlights St Asaph Street is part of an outer core within the Four Aves where land values are lower. https://talkingtransport.com/2020/09/07/land-value-maps/ Zoning may be restricting some of the possible redevelopment opportunities. Also, land value rates would help incentivise redevelopment.
Another very important contributor to land prices is bank credit and regulation thereof. Other things being equal, looser credit (i.e. willingness of banks to lend larger amounts to bidders/buyers) inflates land prices. Loan to income ratios, recently introduced, are one tool to moderate this. More is needed to moderate this since banks are incentivised to take as much of households' "discretionary" income as possible.
1. Think about value capture as recouping the joint uplift due to infrastructure AND rezoning, and as best operationalised at the point of rezoning (not infrastructure delivery).
2. The RUB doesn't make housing more expensive. The rural-urban price differential doesn't measure what is added to urban land prices. Rather, it measures what is subtracted from rural land prices by virtue of not being zoned urban. I recently explained this point here:
In other words, zoning boundary price differentials don't tell us about house price effects. They might tell us about efficiency, i.e. net benefits from rezoning. But that would require adjustments for external costs (infrastructure and externalities).
Those empirical studies you referred to are premised on a misunderstanding of opportunity cost and are basically meaningless.
Good post. It’s also worth mentioning the impact of the rapidly rising development contributions on land values which is putting downward pressure and in some cases making new development unfeasible.
Hi Stephen, thanks for your comment. Agree there is a lot going on in that space. I wanted to keep this more general but I may cover that specifically in future.
"You would expect to see reasonably flexible commercial activities with lower returns, like car yards and storage units, be located in areas of low land values."
Why is the Christchurch central city, particularly St Asaph St, just a collection of car yards?
Hey Peter, this is a good question. I think there are multiple factors, generally quite low land values, earthquakes destroying much of the existing residential/commerical stock in central Christchurch leading to a lot of undeveloped land, outwards growth post quakes etc.
This piece from Talking Transport highlights St Asaph Street is part of an outer core within the Four Aves where land values are lower. https://talkingtransport.com/2020/09/07/land-value-maps/ Zoning may be restricting some of the possible redevelopment opportunities. Also, land value rates would help incentivise redevelopment.
Another very important contributor to land prices is bank credit and regulation thereof. Other things being equal, looser credit (i.e. willingness of banks to lend larger amounts to bidders/buyers) inflates land prices. Loan to income ratios, recently introduced, are one tool to moderate this. More is needed to moderate this since banks are incentivised to take as much of households' "discretionary" income as possible.
Nice column. Couple of comments.
1. Think about value capture as recouping the joint uplift due to infrastructure AND rezoning, and as best operationalised at the point of rezoning (not infrastructure delivery).
2. The RUB doesn't make housing more expensive. The rural-urban price differential doesn't measure what is added to urban land prices. Rather, it measures what is subtracted from rural land prices by virtue of not being zoned urban. I recently explained this point here:
https://www.fresheconomicthinking.com/p/yes-it-is-wrong-to-assume-that-residential
In other words, zoning boundary price differentials don't tell us about house price effects. They might tell us about efficiency, i.e. net benefits from rezoning. But that would require adjustments for external costs (infrastructure and externalities).
Those empirical studies you referred to are premised on a misunderstanding of opportunity cost and are basically meaningless.