Factors affecting demand for and

supply of urban land 

Present by – Kuldeep Dodiya (12UP04)

Factors affecting the demand for urban land -
1. Income - the disposable (after tax) income of prospective buyers.
"Demand" means desire backed by purchasing power, not just desire alone.

2. Price - the term "demand" should always be considered "the quantity

demanded at a given price". 

3. Cost and availability of finance - high interest rates will reduce the
amount of borrowings that purchasers can afford, thus depressing the
demand for land (not comments re: supply of land).

4. Demographic features of the population - The size of the population (in

relation to a given area of land), age distribution, rate of household
formation, rate of natural increase, immigration and emigration,
geographical distribution, internal migration, etc., will have an effect on the
demand for land. 
5. Physical characteristics of the site - size, gradient, sub-soil, vegetation,
prevailing winds, views, etc.

6. Proximity to amenities - Schools, shops, parks, sporting facilties,

transport facilities, etc.

7. Proximity to employment opportunities

8. Rental opportunities - A thriving rental market might raise the value of

land above that which could be obtained in a predominantly owner-
occupied area.

9. Multiple occupancy - if planning laws permit higher density housing,

then the land value may increase
10. Inflation and the expectation of inflation - the expectation of future
inflation (or capital growth) will make people less unwilling to pay higher
prices

11. Government grants, eg. FHOG, etc. The actual outcome (whether or not
it is better for buyers) depends on whether it is a buyers' market or a sellers'
market, eg. on the elasticities of supply and demand.

12. Re-zoning or the prospect of re-zoning - Huge increases in land values

often occur when land is re-zoned from a lower to a higher use, eg. from
farming to residential or from residential to industrial. The expectation of a
future re-zoning will promote an upward trend in land values, accelerating
as the actual re-zoning approaches.
14. The state of the economy - land prices, like the prices of other
commodities will be affected by the general state of the economy, eg. by
the affluence of the population, employment (and unemployment), CPI, and
wealth and income factors.

15. Superannuation and retirement schemes - Lump sum payments can

boost the market for land as such money is often invested in real estate.

16. Neighborhood effects - Surrounding developments etc. can affect the

value of a property. For example, the construction of a busy road, an airport
or a factory could reduce land values. Conversely, the construction of a
bridge, development of a recreational park, or the closure of a street to
through traffic could raise land values.
Factors affecting the supply for urban land -
1. Physical features - the supply of land is affected by physical features
such as rivers, mountains and land gradients.

2. Density of development - physical limitations on the supply of land can

be offset to tome extent by more intensive development

3. Time period - any talk of the "supply" of land must occur within the
context of a time period. In the very short run the supply of land coming
onto the market is relatively fixed. Over a longer time period there will be
some flexibility in the supply of urban land, and the supply will tend to be
more responsive to changes in prices.

4. Substitution between uses - even though the total supply of land might be
fixed, the supply of land for one particular use (eg. residential) could be
increased by transferring land from other uses (eg. recreational and
industrial).
 5. Allotment stocks - the rate at which the supply of residential allotments
can be increased in response to an increase in demand will depend on the
size of the current stock of vacant allotments and of the motivations of the
owners of those allotments.

6. Speculation - On the one hand it is argued that speculators, by

withholding land from the market or by only allowing it to 'trickle through'
in small quantities, force land prices up and expolit the end users of land.
On the other hand, it is argued that speculators perform a useful role in the
urban land market: they assist in the operation of the price mechanism by
ensuring that sites are allocated to the highest bidder and thus put to their
'highest' use, and by investing funds and taking risks they faciltate the
development process.

7. Monopolies and restrictive practices - the supply of urban land coming

forward onto the market at any given time, place and price (as distinct from
the quantity of zoned land already in existence) can be affected by the
degree of concentration of ownership and / or by restrictive agreements
(explicit or implicit) between owners.
8. Development costs - The costs of development and of the projected
profits to the developer can affect the supply of urban land. Developers
will, of course, attempt to pass these costs onto consumers but their success
in doing so is limited by the price elasticity of demand.

9. Administrative delays - Developers frequently argue that a major

contributing factor to the high price of developed sites is the time taken to
obtain the required approval from many departments. It is also the case that
in some instances the requirements of departments can (and have been)
contradictory.

10. Taxes and land rates - As an example, high levels of land tax and rates
have the potential to discourage people from holding large amounts of land
and could therefore encourage them to bring that land onto the market. 
 11. Interest rates - needless to say, high interest rates tend to reduce the
demand for land and hence reduce land prices. However, high interest rates
tend to raise the cost of financing development - thus forcing prices up. The
net result is difficult to predict as it will depend upon the relative strengths
of opposing forces. Depending on the ability to raise rents, higher interest
rates also have the capacity to decrease the value of rental property
because, if rents cannot be increased, the higher interest rates will reduce
the present value of expected rents; and lending money at high interest rates
could become more profitable than investing in rental property.

12. Government charges - eg stamp duties. Owners and developers will try
to pass these charges on to the buyers, thus tending to raise the supply price
of land, but as in the case of taxes the precise incidence (who pays in the
end) is not clear (it depends upon the slope of the demand curve, among
other things).