URBAN LAND USE PATTERNS, LAND

VALUES, AND ROLE OF LOCAL STATES Chapter three

IN
URBAN LAND MANAGEMENT
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DETERMINANTS OF THE
PRICE OF URBAN LAND
 The price of land is determined by the interaction of supply and demand in the market.
 The price of land can be regarded as being determined by demand alone
 Total supply of land is fixed

 Nevertheless the supply of sites for anyone use cannot be regarded as being completely
inelastic, since alternative
 locations exist as we move outwards from the centre: any increase in the demand for land of a particular
type or for a particular use is capable of bringing forth additional supplies.
 Moreover, greater intensity of site use is possible, chiefly by the addition of capital to build upwards.

 The demand for land is derived from demand for output (e.g. housing, corn).
 The price of land is high because the demand for output from land is high.

 Different locations have different use-capacities, a pattern of differential rents emerges.

 Furthermore, the pattern of land use reflects the competition between alternative uses for sites in the
market.

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URBAN LAND VALUE
 The maximum amount that a particular activity can bid for land in a given location
depends upon:
 Businessmen's profit-maximizing decisions
o difference between receipts and costs.
 Households' utility-maximizing considerations
o Utility advantage of a locality over costs of travel

 The principal factor that determines profitability and utility maximizing ability of
land is accessibility
 The advantages of a particular urban location in terms of movement, convenience
and amenity.
 Two types: general accessibility and special accessibility.

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CONT…
General Accessibility
 The advantage of a particular location in terms of the movement costs (including time)
it avoids and the revenue-earning capacity (including convenience) it affords (the
money, time and travel costs of getting anywhere).
 firms require general accessibility to factors of production (particularly labor) and to markets,
 households seek accessibility to work opportunities, shops, schools and recreational facilities.

 General accessibility is largely dependent upon transport facilities.

 Many business users find that the centre of the urban area, the Central Business District
(CBD) affords the greatest accessibility.
 CBD is limited spatially, and competition for sites there results in high prices/rents.
 For shops, accessibility to as many customers as possible is paramount and the revenue-earning capacity
of ground floor locations in the CBD enables them to outbid other users.
 Offices which are labor intensive, find upper-storey locations present no great obstacles to accessibility
and so they are able to outbid other users.

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CONT…
Special Accessibility:
 It results from external economies of concentration or complementarity.
 External economies of concentration can take the form
 ready supply of trained labour (such as secretarial skills),
 common services (such as servicing office equipment), and
 reputation of the location which has a pulling or attractive effect for a location.

 However, for some businesses diseconomies of concentration such as traffic congestion may exercise a
repellent effect, and eventually reduce the general accessibility of a locality.
 Complementarity exhibits different aspects.
 First, shops selling comparison goods can each other's trading market and enhance the reputation of the locality for a
particular good through the greater choices offered to customers.
o for instance, ladies' fashions, antiques and works of art
 Second, personal contact with other specialists during the working day may be necessary
o For example, advertising agencies and newspapers, discount houses and banks).
 Third, consumer services congregate in the CBD since they serve the workers and shoppers there.
o Such as restaurants, cinemas, theatres, hotels
 Fourth, complementarity induces smaller shops to be near a dominant retailer or may even bring together unlike activities.
 But sometimes complementarity may be negative, acting as a repellent.
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CONT…
 Additional factors determining broad structure of urban land use and producing
differences in land value across city include:
 (a) Topographical features- physical aspects such river, mountains, plains, slopes,
wind, climate, and geology –often influence the location decisions of different
activities.
 (b) Institutional and economic factors- for instance the willingness of institutions to
provide funds for housing and other developmental activities in the urban area.
 (c) Dynamic factors, chiefly the secular increase in real income and technical
developments, also alter location.
o For instance, the wide ownership of cars may result in setting up of out-of-town residences.

 (d) Government policy, both central and local, influences location decisions through
its policies on taxation, planning, parks, open spaces, conservation, transport and
traffic congestion, housing, schools, universities, public utilities, hospitals, and so on.
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BID RENTS AND LOCATION
GRADIENT: THE IMPORTANCE
OF RELATIVE LOCATION
 The amount one pays for the use of land is called rent
 The rent changes with distance is called location rent
 i.e. the advantage of one parcel of land over another because of its
location; the concept of declining rent with an increase in distance
from the market

 The users of land are conceptualized as participating in an

open bidding process such that the highest bidder for a
parcel of land will occupy that parcel.
 The bid rent for land equals the difference between total
revenue and total cost.
 The bid-rent function shows how much a firm is willing to
pay for land at different distances from the market/CBD.
 The function is negatively sloped: transportation costs are lower near
the CBD.
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CONT…
 If retailers’ value access to consumers more than
manufacturers then retailers will want to locate in
the center to maximize access to consumers.
 Agglomeration economies for retailers facilitates both
contact between entrepreneurs and comparative shopping by
customers.

 For manufacturers, access to markets and labor is

important, but less important than for retailers.
 Under this condition, the slope of the bid rent
function for manufacturing will be flatter than the
bid rent function for retailers
 The intersection of the two bid rent functions (point
d1) defines the point at which land use changes
from retail activities to manufacturing activities.
 Spatial equilibrium

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CONT…
 Many households will value
 access to the CBD to minimize on commuting costs
 open space and lower density lifestyles.

 Thus households will have a bid rent function

for urban land that is flatter than the bid rent
line for manufacturers
 In the figure, we have three types of users of
urban land: retail, manufacturing and
residential.
 The bid rent functions for retail and manufacturing are
similar
 The point at which land changes from manufacturing
use to residential use is marked on the x-axis at point d2

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CONT…
 Tracing only the upper-most portions of each bid rent
function renders the land rent gradient
 The rent gradient indicates the rate at which the value of
urban land declines with distance from the CBD.
 The intensity of urban land use is correlated with the
height of buildings
 Generally taller buildings being located on higher valued land
 This is because land prices increase closer to the CBD, centrally
located land will tend to be used more intensively.
 This explain why tall buildings are found in central business
districts.

 As one moves away from the CBD both the value of

land and its intensity of use decline, as do the height of
structures.
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LAND MARKETS, SPECULATION, AND
GOVERNMENTS IN THE URBAN
ECONOMY
 In traditional capitalist literature land is regarded as one of the three basic factors
of production in an economy together with labor and capital.
 Land is a special component because unlike labor and capital it is finite.
 Land or at least land-use rights have been used as a commodity to be bought and
sold in capitalist systems for at least the past two centuries.
 If land and property markets are not regulated, they can contribute to the collapse
of capital markets, and cause unemployment.

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 CONT…
 The urban economy comprises three basic markets:
 the urban land market,
 the urban capital market, and
 the urban labor market.

 These markets are inexorably linked and dependent on each other.

 Efficient and equitable land markets are a prerequisite for well functioning cities.
 Distortions in the land market often lead to land speculation.
 Not properly regulated land markets can considerably
 Collapse of capital markets, and
 Cause unemployment in the labor markets.

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 CONT…
Political aspects of land development and management
 The key to efficient land markets is the easy and rapid availability of developed land.
 In the urban periphery there is need for more planning controls.
 What this means is proper regulation which facilitates the development of land but at the same time
provides rules which protect the environment and improve the quality of life of urban residents.
 The main constraints to efficient land markets are often more political than technical.
 Land in and around urban areas are either owned by the government, by the private sector or, it is
owned communally by tribes or clans.
 Often large land owners, be they governmental, communal or private, have a vested interest in
maintaining the status quo.
 These vested interests gain more by keeping the land markets fragmented, without proper controls and
by keeping the dealings in the land market non-transparent.
 While they profit from the status quo the prime losers are the urban residents, particularly urban poor.
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 CONT…
Land development and poverty alleviation
 The urban poor suffer most from a dysfunctional city.
 Distortions in the land markets allow land speculation which often prices the poor
out of the formal land markets, into the informal land markets which are
exemplified by slums, squatter settlements and illegal sub-divisions, mainly in the
periphery of cities.
 This leads to longer commuting time and costs, very poor living conditions,
caused by a lack adequate infrastructure and services, causing poor health and
greater expenditure, thereby entrenching the cycle of poverty.

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 CHARACTERISTICS OF
EFFICIENT LAND MARKETS
 Efficient, equitable, and well-functioning land markets are a prerequisite for well
functioning cities and poverty reduction in urban areas.
 Once land is traded as a commodity a land market is considered to exist.
 A well-functioning land market could be defined as one which is:
• Efficient:
o the system governing the land market encourages quick development and transaction of land.

• Equitable:
o the system governing the land market provides reasonable access to all groups.

• Environmentally sound:
o the system governing the land market protects its sustainable use for the good of both current and future users

• Compatible:
o The system governing the land markets is integrated with other laws and regulations governing land, such as,
planning, taxation and provision of public infrastructure and services.
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 CONT…
Land speculation and its consequences
 Land speculation occurs when the demand for land, at the present time or in the near future, outstrips the supply of
land.
 This can be caused by several factors both on the demand side and on the supply side.
 On the demand side land speculation can be triggered by
 excess liquidity in the financial markets caused either by rapid economic growth or
 lack of opportunities for investors in other sectors of the economy in slow growing economies.

 Land speculation can drive land prices beyond the productive value of the land, causing a "bubble" land and
property market.
 On the supply side land speculation is caused by bottlenecks in the availability of serviced-land
 These bottlenecks can be caused by several factors either in the land development phase or in the transaction phase

 Slow infrastructure provision, as in the case where government agencies are in charge of providing infrastructure in
many countries, is the primary cause for rampant land speculation.
 Another cause of slow land development is poor city planning.
 The government often provides arterial infrastructure.
 Thus only land closest to the arterial infrastructure is developed, causing ribbon or corridor development.
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 GOVERNMENT
INTERVENTIONS IN URBAN
LAND MARKETS
 Historically governments have felt a need to guide and control the important structural changes
which occur within their domain.
 especially for a scarce resource such as land.

 Three main justifications for government interventions in the urban land market are often cited:
1. Eliminating market imperfections and failures to increase operating efficiencies.
2. Removing externalities so that the social costs for land market outcomes correspond more closely to private costs.
3. Redistributing society's scarce resources so that disadvantaged groups can share in society's output.

 Governments have a wide variety of tools available to implement their objectives of regulating
land market within its boundaries.
 registration,
 planning tools,
 zoning ordinances,
 permits,
 inspections and
 penalties.
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 CONT…
Land registration
 Efficient functioning of land markets requires efficient and updated land registration systems which clearly
indicate legal ownership of land.
 As populations gradually grew in most societies, land became an increasingly scarce resource and various
types of rights to use the land develop.
 It became increasingly necessary to develop systems which would clarify ownership and minimize disputes in
land ownership rights and transfers.
 Land registration is also important for governments for collecting property taxes. Without knowing who owns
the land and what that land is being used for, governments cannot levy property taxes.
 Some of the major benefits are
 Security of ownership and tenure rights
 More efficient land transfers
 Security of credit
 Public control of land markets and intervention
 Support for the land taxation system
 Improved land use and management:
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CONT…
Planning tools
 Physical planning guides development of a city and promotes pre-determined
land-use pattern
 The broad objective of these plans is to guide the development of the city for a
specified time period and to promote the land-use pattern which most efficiently
fulfills the objectives of the government
 The most commonly used planning tools include
 master plans,
 structure plans, and
 zoning.

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 COPING MECHANISMS OF THE
POOR; INFORMAL LAND MARKETS
 Land and housing have especial significance for the poor.
 Often a house for a poor is not just a shelter it is also a place for income generation.

 When the poor are locked out of the formal land and housing markets they revert to
the informal land and housing markets to meet their needs.
 Slums
 Squatter settlements and
 illegal settlements

 Slums
 Slums are legal but overcrowded, under-serviced (under substandard) settlements.
 Slum dwellers are low-income individuals or households mainly in the urban informal sector.
 Slum settlers could be either renters of the shelter, or the land or they could be owners of the land
and dwelling.
 Slums are normally found in the centers of cities, although it is not uncommon to find slums, where
land is rented, in the urban periphery.
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 CONT…
 Squatter settlements
Squatter settlements are settlements where land has been occupied illegally.
They are unplanned, often un serviced illegal settlements.
They are often found on marginal or environmentally hazardous lands, such as beside railway tracks,
along rivers and canals etc.
They are also found on government land or land whose ownership is unclear.
Housing conditions can remain substandard for years if the squatters perceive that there is a threat of
eviction.
They often minimize the amounts of capital investment in their housing because their land tenure is
illegal.

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CONT…
Illegal subdivisions
While squatter settlements are spontaneous and unorganized, illegal subdivisions are planned and
organized.
These usually occur in cities where the government owns large tracts of vacant land, with low
opportunity cost, in the periphery of the city.
Illegal settlements are started by unscrupulous land developers in league with corrupt government
officials.
Housing conditions are often better than in squatter settlements because the perception of secure
tenure is higher.
With the protection of these corrupt officials these developers occupy government land, level it and
subdivide it, according to government planning regulations, planning space for commercial,
residential zones, schools, hospitals, religious institutions, recreation areas, primary, secondary and
tertiary roads etc.
As the settlement grows the developers usually form a resident's welfare association which lobbies
with government agencies to provide services and infrastructure.

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BRINGING THE POOR INTO
THE FORMAL LAND MARKET
 Poverty can be defined as the lack of security and choices. For the poor these two
elements are missing in the land and housing markets.
 Bringing the poor into the formal land and housing markets needs a two pronged
strategy:
 Increasing the choices and available on the supply side and
 Sites-and-services
 Illegal settlements regularization/upgrading
 Incremental development
 increasing affordability on the demand side
 Community organization
 Increasing savings and providing access to finance

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URBAN POVERTY AND Chapter Four

PUBLIC POLICY
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SOME BASIC CONCEPTS OF
URBAN POVERTY
 Poor household
 defined as one whose total income is less than the amount required to satisfy the ‘minimum needs’
of the household.

 There are two types of measure of poverty:

 Absolute poverty and
 quantifies the number of people below a poverty line, and
 this poverty line is thought to be independent of time and place.

 Relative poverty.
 almost the same as measuring inequality
 If a society gets a more equal income distribution, relative poverty will fall.

 absolute poverty can be eradicated, relative poverty can only be alleviated,

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CONT…
 Urban poverty can result in a broader cumulative deprivation, characterized by
 Inadequate or unstable income, which translates into inadequate consumption;
 Inadequate, unstable or risky asset based income,
 considering that there are many different kinds of assets – including social, human, financial,
physical (capital goods, equipment, etc.) and natural (for instance access to productive land);

 Poor quality/insecure housing and lack of basic services, squalid living conditions,
risk to life and health, poor sanitation, air pollution, crime and violence, natural
disasters; and
 Discrimination and limited access to formal labor market
 for women, the discrimination they face in labor markets and access to credit and services;
 discrimination faced by certain groups based on their ethnic origin or caste;
 breakdown of traditional family and community safety needs.

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CONT…
Cumulative impact of urban poverty

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CAUSES OF URBAN POVERTY
 In developing countries, there are a number of causes of urban poverty apart from inequality and low per
capita income
Low economic growth and stagnation
Residential segregation: decreases real income and increase poverty in different ways.
 First, if poor are forced to commute relatively long distances to suburban jobs
 Second decreases access to the informal information network, increases such costs and decreases employment rates.

Low educational achievement:

Labor Discrimination: Employment and wage
 Globalization - Globalization is forcing developing countries to restructure their economies to make them
more competitive in the global market
 Government budget cuts, particularly in areas such as education and health, have reduced the level of services available to the
poor.

Demographic change and Female-headed households/gender dimension cause of poverty

 poverty rate of female - headed households is greater than male-headed households.
 The basic reasons are most of female-headed households are single parent households, so the woman must manage employment
and child-care responsibilities.
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THE THREE MAJOR ASPECTS
OF POVERTY
 Poverty essentially has three closely interrelated aspects:
 poverty of money,
 the lack of money is more a symptom of poverty rather than its cause.
 In most cases, the poor are not without an income; what they lack is the ability to accumulate assets,
 poverty of accesses
 The poor often do not have access to basic infrastructure and services.
 They are forced to live in illegal and informal settlements
 poverty of power.
 formal structures and the culture of governance tend to exclude the poor from decision-making
 decision-making concentrate among a small number of formal and informal elites.
 Another important aspect of power is information, which the poor often lack access

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TOWARDS ALLEVIATING THE
THREE MAJOR ASPECTS OF
URBAN POVERTY
A. Alleviating the poverty of money
 Integrating the economies of the poor through micro enterprises
 Providing access to credit
 Investing in the knowledge-based economy
 Promoting community-based safety-nets
B. Alleviating the poverty of access
 providing the poor with access to capital, to improved technical skills and know-
how, and by granting tenure security.
 regularization/upgrading of existing settlements

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CONT…
C. Alleviating the poverty of power
 Good governance: has eight major characteristics.
 Capacity-Building
 institutional change and
 human resources development.

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GENERAL POLICY ISSUES
TOWARD URBAN POVERTY
 There are about five policy issues deserving top priority
 labor markets & employment;
 Support to small and micro-enterprises
 Increasing access to job opportunities
 Supporting home-based income-generating activities and employment-intensive work programs

 land, housing and urban services;

 financial markets;
 Social protection and social services; and
 environment.
 Solid waste management
 Water supply, sanitation, and wastewater management
 Industrial pollution management:
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QUESTIONS FOR REVIEW
 How do you define urban poverty? What criteria do you use?
 Describe the characteristics of urban poverty from the context of your city.
 Do you settlement segregation of the poor in your hometown?
 How do you advise urban governments in your Woreda or home town to create job
opportunities for the poor?

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