A Theory of Land Prices when Land is Supplied Publicly: The Case of the Netherlands

Abstract

Most attempts to explain land prices assume free competition between suppliers and demanders of land. If there are constraints on this competition (e.g. land-use planning) this is added as a modification to the theory. When, however, the supply of building land is in the hands of public agencies, which determine the volume and price of supply specified by land use and location, a different theoretical approach is needed. In this situation, certain economic principles apply which determine the maximum and minimum prices at which land will be bought for development and at which serviced building land will be supplied for development. However, both the limits of this range and the actual land prices within it will depend on political choices made by the public agencies. In the Netherlands, municipalities dominate the supply of land for development and redevelopment. Information about the way Dutch municipalities make the political choices and about the actual land prices there, suggests they make the political choices in a consistent way: they see themselves as suppliers of a public utility, namely building land. They try to supply so that there is never any scarcity, so that quality is high, so that prices no more than cover costs. The resulting prices might not be low, but they represent good value for money, because no-one reaps development gains directly. These are low because disposal prices are lower than could be realised, or development gains are absorbed in providing either a better quality of land servicing or more land for social uses.

A hedonic price analysis of the value of industrial sites

“…According to Needham (1992), scarcity should be taken into account at a regional level since the market for industrial land usually covers an area that is larger than a municipality. Although it is not researched empirically, a relation is assumed between the abundant provision of new industrial sites and negative effects such as rapid decline of existing sites, high vacancy rates and declining property values.…”

Providing Cheap Land for Social Housing: Breaching the State Aid Regulations of the Single European Market?

“…Needham andDe Kam, 2000 andCECODHAS (2010) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 …”

“…Moreover, in a transaction involving a government building for example, the building is regarded as an end product, whereas development land is regarded as an 'intermediary product' whose value is codetermined by the end product (housing, offices, etc.) (NEEDHAM, 1992;MORI, 1998;VAN DIJK et al, 2007). If local authorities fail to follow an unconditional bidding procedure or to order a valuation and sell land below the market price to a provider of social housing, then state aid may be implied (see also Figure 1).…”

Stagnation in Housing Production: Another Success in the Dutch ‘Planner's Paradise’?

“…Schmidt-Eichstaedt (1999) writes positively about Dutch legislation that regulates compulsory purchase and the capacities of local government in land management. VoÞ (1997) takes the view that the Netherlands has managed to implement the golden rule of land production: land is offered in good time, for the proper functions, at a reasonable price (see also Needham, 1992). With reference to research and earlier sources of international admiration for Dutch planning [such as Hall (1966) in The World Cities, and Burke (1966) in the Greenheart Metropolis], Faludi and van der Valk (1994) therefore declared the Netherlands a`planner's paradise' in their study of Dutch strategic spatial planning.…”

“…The active intervention of government in guiding and orchestrating spatial investments does not replace the classical instruments of planning such as zoning but is an addition to these classical instruments. This successful tradition of spatial planning, and the combination of facilitating and prohibiting planning powers, rests on three cornerstones: (1) within a framework of shared sustainable ideas on spatial planning, the endeavours of various authorities to reach a consensus on the (desired) spatial development and the way in which it should be achieved (the spatial planning doctrine ; see Faludi and van der Valk, 1994); (2) the willingness of higher authorities (the housing, transport, and public works sectors) to inject subsidies as part of spatial policy; (3) the willingness of local authorities to conform and their ability to enforce the policy by buying and developing the raw land and implementing spatial developments autonomously (see Lefcoe, 1979;Needham, 1992).…”