URBAN LAND USE

AND VALUE
CONTENTS
• Introduction
• What is land economics?
• Factors influencing land values
• Land-use decisions
• Determination of the price of land
• Land value determinants
• Pattern of land values
• General patterns of land use
• Conclusion

(content of this presentation is based on Assoc. Prof. Khairani Ahmad’s student notes)
INTRODUCTION
Land means:
• Free gifts of nature
• Used to yield an income
• Unique factor of production
• Combined with other factors – earns a
revenue
• Fixed in supply
DEFINITION OF LAND
Under Section 5 National Land Code:
Land includes:
1. Surface of the earth and all substances forming
that surface;
2. Earth below the surface and all substances
forming that surfaces;
3. All vegetation and other natural products;
4. All things attached to the earth/permenantly
fastened to any thing attached to the earth
(on/below surface);
5. Land covered by water
CHARACTERISTICS OF LAND
Land is characterised by:
1. The relative fixity of supply
▪ Total supply of land is fixed
▪ Land use can be increased by more intensive use
▪ But compare to capital and labour, land is least
flexible
2. No cost of creation
▪ Man cannot create land
▪ Cost nothing to create, but when land is
developed, costs are incurred
CHARACTERISTICS OF LAND
Land is characterised by:
3. Heterogeneity
▪ To the user of land each site and building is
different
▪ Land can be classified into a number of economic
categories:
▪ Sub-marginal land having no remunaritive use
▪ Break-even marginal land and
▪ Profit or surplus yielding infra-marginal land
CHARACTERISTICS OF LAND
Land is characterised by:
4. The law of diminishing returns
▪ David Ricardo
‘‘after succesive applications of labour and capital
to a given area of land, first the marginal output,
then the average output and eventually the total
output diminishes’’.

5. The absence of a market for land

▪ No specific setting to sell/purchase land
CHARACTERISTICS OF LAND
Land is characterised by:
6. Economic or scarcity rent
▪ Land produces a return quite different from labour
and capital, which is known as commercial rent
▪ Commercial rent comprises of transfer earning and
economic/scarcity rent
▪ Transfer earning is the minimum payment
necessary to keep the land occupied, while
Economic rent is the income above and beyond
what is needed to keep the land occupied
▪ It reflects the scarcity value of land
WHAT IS LAND ECONOMICS?
Economics
▪ Can be defined as a study of how man adapts the
resources of the world to satisfy his wants
▪ Limited amount of sources
▪ How the best use can be made of the resources which
are available?

Land economics
▪ The application of the theory of economics to the
problem related to the use of land
WHAT IS LAND ECONOMICS?
Land economics (cont’d)
▪ As to how economics can explain the causes and
consequences of human actions in this field
▪ The study of land use leads to a study as to how a
labour and capital are used with land to produce
goods and services
▪ Land economics involve labour economics, public
finance and every possible field of economic study

Why a seperate study?

▪ To enable attention to be concentrated on the
economic consequences of those factors which have
major influence in this field
WHAT IS LAND ECONOMICS?
Why a seperate study? (Cont’d)
▪ To focus on any special or peculiar characteristics in
land economics
▪ Examples:
▪ Economic consequences of non-transferability of
land geographically,
▪ Its durability and use over time can be examined
▪ These special characteristics lead to some parts
of economic theory being more relevant to the
field of study than other parts
 FACTORS INFLUENCING
LAND VALUE

Residential Agricultural
user user

Different
Type of User!

Commercial Industrial
user user
 FACTORS INFLUENCING
LAND VALUE
Land Use??
• Different Type of User!
• Residential user, Commercial user, Industrial user and
Agricultural user

What’s in common??? All influence by…

1. ACCESSABILITY – to work place, shops, school, public
transportation, customer, labour, land space
2. PRICE – relates to demand & supply
 FACTORS INFLUENCING
LAND VALUE
Land economics theory – these factors are taken into
account in the property market
▪ General accessibility
▪ Special accessibility – agglomeration economies
▪ Other influences on land use
▪ Institutional factors
▪ Other factors
FACTORS INFLUENCING LAND VALUE
GENERAL ACCESSIBILITY
▪ Accessibility is the advantage of a particular location in
terms of:
▪ The movement costs it avoids and
▪ The revenue-earning capacity or
▪ Convenience it affords
▪ Profitability, and therefore the value of land are
influenced by accessibility
▪ Firms require accessibility to markets and to factors of
production (particularly to labour)
▪ Households require accessibility to work opportunity,
shops, schools and recreational facilities
FACTORS INFLUENCING LAND VALUE
GENERAL ACCESSIBILITY (Cont’d)
▪ Some users will place greater importance upon
accessibility than others
▪ Business users find that CBD provides the greatest
accessibility
▪ But since sites there are limited spatially, rents are
high
▪ Thus, shop and offices can outbid other users for
the CBD
▪ Complementary uses (hotels and restaurants
and certain leisure pursuits) will tend to
congregate in or near CBD
FACTORS INFLUENCING LAND VALUE
GENERAL ACCESSIBILITY (Cont’d)
▪ Some users will place greater importance upon
accessibility than others
▪ Business users find that CBD provides the greatest
accessibility
▪ But since sites there are limited spatially, rents are
high
▪ Thus, shop and offices can outbid other users for
the CBD
▪ Complementary uses (hotels and restaurants
and certain leisure pursuits) will tend to
congregate in or near CBD
FACTORS INFLUENCING LAND VALUE
SPECIAL ACCESSIBILITY - AGGLOMERATION ECONOMICS
▪ Refer to the external economies resulting from the
proximity of similar activities
▪ Advantages of shops locating near to each other:
▪ Tapping each other’s market
▪ Offering choice to customers and
▪ Enhancing the attractiveness of shopping trip
▪ Advantages of offices of being close together:
▪ Labour supply and availability of common services
▪ These are called agglomeration economies
FACTORS INFLUENCING LAND VALUE
SPECIAL ACCESSIBILITY - AGGLOMERATION ECONOMICS
(Cont’d)
▪ Agglomeration economies
▪ ‘’within the general pattern of urban land use, there is
‘clustering of shops specialising in particular activities
on adjacent sites’’
▪ Such as Indian Jewellery (Lebuh Ampang), Chinese
antiques (Petaling Street), Ladies’ fashions (Jalan TAR)
▪ Similarly, manufacturing or service firms may cluster
together
▪ While households may favour locations close to other
people with similar tastes, social background, etc
FACTORS INFLUENCING LAND VALUE
Other influences on land use
1. The growth in the size of that area
2. Imperfections of the capital market
3. Improvement of building techniques
4. Transport developments

Institutional factors
1. Provide public goods
2. Secure external benefits
3. Avoid external costs
FACTORS INFLUENCING LAND VALUE

Other factors
1. Supply and demand
2. The permitted use
3. Location
4. Physical characteristics
5. Availability of public services
6. Form of title
7. General nature of surrounding development and
weather compatible
 LAND-USE DECISION

Rural
▪ Mostly determined by the government as they are
mostly agricultural lands
▪ Straight forward
Urban
Composition of Urban Land Use
Urban land use comprises 2 elements:
1. Nature of land use – relates to which activities are
taking place
2. Level of spatial accumulation – indicates their
intensity and concentration
 LAND-USE DECISION
Urban land uses are mainly decided by:
1. Firms
▪ Occupying main areas
▪ On occasions will decide whether to expand,
move or to redevelop the existing site
2. Households
▪ Decide where to live
▪ Affects the character to urban land use
3. Government authorities
▪ Control of development
▪ Overall transport policy
▪ Sitting of roads, etc
 LAND-USE DECISION
Approach – assume a market economy where:
1. Resources are allocated on the basis of prices, costs and
profits
2. Firms and households have preferences for settling in
particular locations and these preferences are reflected in
the price/rent they are prepared to pay for the use of the
land
3. Owners of land sell/let to the highest bidder
4. Knowledge of the market by buyers and sellers is sufficient
to provide competition
5. There are no dynamic changes, the transport system,
transport costs, technology, etc, remaining unchanged
6. There is no government interference in the market
 DETERMINATION OF THE
PRICE OF LAND
▪ Interaction of supply and demand
▪ Supply of land is fixed,
▪ price of land wholly determine by demand alone
▪ SS general may be fixed, BUT..
▪ SS of land for a particular use is likely to more variable
▪ Within urban area – there is competition between various
sectors/users of land for the limited available area
▪ Land is being shown as fixed in SS
▪ Therefore rent existing level of DD
▪ DD is D1, Earning is OR1DS
 DETERMINATION OF THE
PRICE OF LAND
Economic rent of land in general (Briscoe, p206)

Rent
S

Fixed supply

R2

R1 D D2

D1
EARNING

Quantity
0 S
of land
 DETERMINATION OF THE
PRICE OF LAND
DD by Firms and Households
▪ For a particular location depend upon expected net revenue
yield
▪ The price/rent is what has to be paid by a particular use to
prevent the site going to some other use
Different location
▪ Have different use-capacities,
▪ Pattern of differential rents emerges
▪ Reflects the competition between alternatives uses
for sites in the market
▪ In long run, lands will move to its most profitable use
 DETERMINATION OF THE
PRICE OF LAND
Thus,
Land value and land uses are determined simultaneously
▪ Land cannot be transported; it has to be used where it lies
▪ Plots of land differ in location
▪ Value of urban land is determined by the competing
demands for its particular location and the supply of other
plots having similar or nearly similar characteristics
▪ Supply is very limited in the city centre, but rises as we
move outwards
▪ But since the SS is generally fixed, it is demand which will
tend to dominate price
LAND VALUE DETERMINANTS

Attributes of sites can be divided into three main groups

(in terms of use):
1. Physical
2. Location, and
3. Legal

▪ The prices of sites are very much influenced by the

use to which they can be put
 LAND VALUE DETERMINANTS

General model for determination of land values:

LAND VALUE = AGGREGATE GROSS - TOTAL

REVENUE EXPECTED COSTS
CAPITALISATION RATE

= NET REVENUE
YP
LAND VALUE DETERMINANTS
Revenue – influenced by the investor’s expectation of:
▪ Size of the market
▪ Income spent for various urban services
▪ Supply of competitive urban land
▪ Prospective investment in public improvements
Expected costs – sum of:
▪ Local property taxes
▪ Operating costs
▪ Interest on capital
▪ Depreciation allowances
LAND VALUE DETERMINANTS

Capitalisation rate – affected by:

▪ Interest rates, inflations, etc
▪ Allowances for antcipated risk
▪ Expectations concerning capital gains
PATTERN OF LAND VALUES
Factors influencing Urban Land Use Pattern:
▪ Topography features
▪ Climate condition
▪ Past and present social and religious
customs
▪ Legislation and legal decisions
▪ Demand for goods and services
▪ Policy of local and central government in the
supply of public utilities and social services
As a result of competition, DD and SS, land is
developed to its highest and best use
 PATTERN OF LAND VALUES

Commercial and similar uses:

▪ Located in city centres (able to pay the high land
prices and benefits of maximum accessibility and
convenience)
▪ Rents serve to act as sorters and arrangers of land use
patterns

Commercial and industrial uses:

▪ Can attract land away from residential uses
PATTERN OF LAND VALUES

Complementary purposes:
▪ Enhance the land values
▪ More compatible

Development in transport systems

▪ May also lead to changes in urban land values
GENERAL PATTERN OF LAND USE
▪ Various models available
▪ Does not work so simply and land-use patterns cannot
be easily classified
▪ No model that can adequately account for the wide
differences

Basically:
▪ Pattern of land use in an urban area is a reflection of the
demand for and supply of sites
▪ Process of competition – to secure a site
▪ In terms of greatest return from the accessibility
advantages
GENERAL PATTERN OF LAND USE
Land Use within an Urban Area:
1. Central business district
2. Zone of transition (mixture of land uses)
3. Suburban areas
4. Rural-urban fringe
GENERAL PATTERN OF LAND USE

The Broad Pattern of Urban

Land Use (Harvey, p222)
Zone:
1. Central business district
2. Zone of transition
3. Suburban zone
4. Rural-urban fringe

Declining accessibility,
values and densities
GENERAL PATTERN OF LAND USE
The above explained that:
i. Pattern of land use of the
urban area
ii. Fall in land values from the
centre to the periphery
iii. How the urban grows,
The basic pattern eventually
results – a seperation between
Declining accessibility, workplace and residence
values and densities
GENERAL PATTERN OF LAND USE

Pattern of Urban Land Use (Different Models)

1. VON THUNEN MODEL
2. CONCENTRIC ZONE THEORY
(by E.W. Burgess, 1925)
3. RADIAL SECTOR MODEL
(by Homer Hoyt, 1939)
4. MULTIPLE NUCLEI THEORY
(by C.D. Harris and E.L. Ullman, 1945)
5. ALONSO MODEL (1960)
 VON THUNEN MODEL
▪ Concentrates on differences in the relative importance of
transport costs in different types of production
▪ Underlying principles have been basic to others, where
land rent and distance decay, incorporated.
Assumptions:
i. Two types of urban user – commercial and residential
ii. All urban user prefer to be near the centre of the town
because of its accessibility
iii. Commercial user can outbid residential user
iv. Differences in transport routes and topography can be
ignored
Accessibility and land use (Harvey, p221), Model developed by Von Thunen
 VON THUNEN MODEL
Rent (RM)

Commercial

Residential

0 C P
Distance (km)
Commercial

Residential
 CONCENTRIC ZONE THEORY
▪ The theory illustrates the typical process of urban growth by
a series of concentriccircle expanding radially from the CBD
▪ Direct adaptation of Von Thunen – deals with a concentric
representation
▪ Recognise transportation and mobility behind spatial
organisation of urban areas
▪ Five zones are observe:
1. CBD
2. Zone of transition
3. Factory and low-income housing
4. Middle-and high-income housing
5. Outer commuter zone
CONCENTRIC ZONE THEORY
CONCENTRIC ZONE THEORY
a a : central business district
b : transitional zone
Rents per m2

b c : low income housing

d : higher income housing
c e : commuter zone
d
e

centre a Distance from city (km)

b
Distance from

c
Rent gradients in the concentric
city (km)

d pattern of urban land use

e
Transitional zone – warehouses,
light manufacturing, transport,
facilities and residential land
 RADIAL SECTOR MODEL
All related to Burgess (elaboration of the concentric zone
theory)
▪ It refers to the allocation of housing in the urban areas and
only indirectly to business location, and
▪ Suggested that high quality housing tends historically to
expand outwards from the centre along lines associated
with the speediest transport routes
▪ Other reasons for ‘sectoring’ are:
▪ High-lying areas are healthier than badly drained
lowlands and the prevailing winds carry factory smoke
away from high-income housing
 RADIAL SECTOR MODEL
▪ Other reasons for ‘sectoring’ are (cont’d):
▪ High quality areas of housing also exert a repelling
effect on dissociated activities (such as manufacturing
and wholesaling)
▪ Thus, the concentric zones become sectors
radiating from the centre in Hoyt’s view
▪ Figure shows residential areas are segregated by
income and spread in different directions in different
sectors off the city
▪ As inner areas become abandoned for high rent
residences, they are infilled by the lower rental groups
RADIAL SECTOR MODEL

1. CBD
2. Wholesale and light
manufacturing
3. Low-class
1
residential
4. Middle-class
residential
5. High-class
residential
 MULTIPLE NUCLEI THEORY
▪ Move away from concentric zone notion
▪ In largest city – have a structure which is essentially cellular
and tend to develop a number of nuclei which serve as focal
points for agglomerative tendencies, some more important
than others
The various nuclei may have different origins:
1. Some may have as existed as minor settlements before city
growth began
2. Some may have developed where the growth of population
and purchasing power supports a suburban shopping
and/or business centre
3. Some may have evolved with the development of suburban
industrial areas
MULTIPLE NUCLEI THEORY
1. CBD
2. Wholesale and light
manufacturing
3. Low-class residential
4. Middle-class
residential
1
5. High-class residential
6. Heavy manufacturing
7. Sub business district
8. Residential suburb
9. Industrial suburb
 ALONSO MODEL

▪ Extension to Von Thunen

▪ Commercial interests occupy sites at the heart of
the city
▪ Industrial – transitional zone, just outside the
centre, (mixture of land uses)
▪ Housing – suburban locations

Rents diminish outward from the centre of a city to

offset both lower revenue and higher operating cost
 ALONSO MODEL

a = commercial
Bid rent

b = industry

c = housing/residential
& transport
Residential

Distance
 CONCLUSION
▪ Various theories described must be regarded as
being complementary to one another rather than
exclusive
▪ The later one modifying the earlier to take account of:
i. Movement of population
ii. Movement of employment – to the suburban

Thus, together they explain the patterns apparent in

the modern cities
 CONCLUSION
▪ While the models suggest how the cities grow, they fail to
explain why they grow?
▪ Most of these models are essentially static as they
explain land use pattern
▪ They do not explicitly consider the processes that are
creating or changing them

▪ In summary, factors which determine land use and, in

consequent, land values are:
1. Location: primarily from standpoint of accessibility and
compatibility with adjoining uses
2. Economics: with particular emphasis on supply and
demand, and through this the satisfying of a need/want
 CONCLUSION
▪ In summary, factors which determine land use and, in
consequent, land values are (cont’d):
3. Topography: with the main emphasis on the physical
characteristics of sites acting as sorters of suitability
for specific uses
4. Tenure: freehold or leasehold and if leasehold, the
term and conditions of lease
5. Servitudes: existence or otherwise of easement such
as rights of way, light and drainage, and/or
restrictive covenants
6. Legislation: Town and Country Planning, building
Regulations and other statutory controls