Metropolitan Land Values

Albouy, David; Ehrlich, Gabriel; Shin, Minchul

doi:10.1162/rest_a_00710

Cited by 76 publications

(47 citation statements)

References 16 publications

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“…This alone should raise questions about the mechanism by which price effects from planning regulations occur. Share of land value due to planning is from Glaeser & Gyourko (2003) for cities where their model regression has a significant coefficient for ln(L), and urban land values are 2010 estimates from Albouy et al (2017). The similar results for Detroit and San Francisco are interesting.…”

Section: Discussionmentioning

confidence: 72%

Marginal and average prices of land lots should not be equal: A critique of Glaeser and Gyourko’s method for identifying residential price effects of town planning regulations

Murray

2020

Environ Plan A

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Glaeser and Gyourko’s method of measuring the gap between marginal and average land prices of housing lots has become a popular way of demonstrating the degree to which planning controls, or ‘regulatory taxes’, increase residential land prices. This has led policy-makers across the globe to focus on town planning as a critical determinant of rising home prices. We show, however, that Glaeser and Gyourko’s method shows no such thing. Instead, the price gap is a product of the location premium of land, diminishing returns to buyers of residential land size, and historical city development patterns. Numerous shortcomings are identified in their theoretical model, including that (a) they ignore that development happens over time; (b) their ‘regulatory tax’ is simply the location value of land; (c) they reason inconsistently about the source of land prices, arguing that land at the margins is scarce but locations for whole housing lots are not; and (d) there are no optimal lot sizes nor subdivision incentives in their model. Standard price-taking models of residential land markets that recognize that locations are scarce contain none of these limitations and provide a better interpretation of land price patterns. Empirically, we show that Glaeser and Gyourko’s method finds a high ‘regulatory tax’ even in the absence of regulatory constraints using both simulated suburb development scenarios and historical land sales data from colonial Australia and ancient Mesopotamia. In short, there is no information regarding the effect of planning controls on the supply of new dwellings in a comparison of marginal and average land prices, and this method should not be relied upon to inform planning and housing policy decisions.

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Section: Discussionmentioning

confidence: 72%

Marginal and average prices of land lots should not be equal: A critique of Glaeser and Gyourko’s method for identifying residential price effects of town planning regulations

Murray

2020

Environ Plan A

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“…For these cities, 80% of residential land value is attributed to planning controls. Matching these estimates to estimates of the total value of residential land in these cities in 2010 from Albouy et al (2017), leads to the conclusion that $2.3 trillion of residential land value in these cities alone was created by town planning rules. Removing planning constraints in these cities could rapidly wipe $2.3 trillion in land value from the balance sheets of homeowners in these cities-a shock to household balance sheets similar to the late 2000s financial crisis, where home prices (house and land) fell 31% nationally according to the Case-Schiller Index.…”

Section: Discussionmentioning

confidence: 99%

“…Implied economic power of the planning profession Share of land value due to planning is fromGlaeser & Gyourko (2003) for cities where their model regression has a significant coefficient for ln(L), and urban land values are 2010 estimates fromAlbouy et al (2017). The similar results for Detroit and San Francisco are interesting.…”

mentioning

confidence: 82%

Marginal and Average Prices of Land Lots Should Not Be Equal: A Critique of Glaeser and Gyourko's Method for Identifying Residential Price Effects of Town Planning Regulations

Murray

2019

SSRN Journal

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Glaeser and Gyourko's (2003) (henceforth G&G's) method of measuring the gap between marginal and average land prices of housing lots has become a popular way of demonstrating the degree to which planning controls, or "regulatory taxes", increase residential land prices. This has led policy-makers across the globe to focus on town planning as a critical determinant of rising home prices. We show, however, that G&G's method shows no such thing. Instead, the price gap is a product of the location premium of land, diminishing returns to buyers of residential land size, and historical city development patterns.Numerous shortcomings are identified in their theoretical model, including that (1) they ignore that development happens over time, (2) their "regulatory tax" is simply the location value of land, (3) they reason inconsistency about the source of land prices, arguing that land at the margins is scarce but locations for a whole housing lots are not, and (4) there are no optimal lot sizes nor subdivision incentives in their model. Standard price-taking models of residential land markets that recognise that locations are scarce contain none of these limitations and provide a better interpretation of land price patterns.Empirically, we show that G&G's method finds a high "regulatory tax" even in the absence of regulatory constraints using both simulated suburb development scenarios and historical land sales data from colonial Australia and ancient Mesopotamia. In short, there is no information regarding the effect of planning controls on the supply of new dwellings in a comparison of marginal and average land prices and this method should not be relied upon to inform planning and housing policy decisions.

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“…However, this figure represents an average, and the economic value of urban ecosystem services is highly variable in different regions (Song, Tan, Edwards, & Richards, ). Similarly, the value of urban land is highly variable, ranging from over $100,000,000, to around $30,000 dollars per acre across the USA alone (Albouy, Ehrlich, & Shin, ). The relationship between the cost of land and the economic value of urban ecosystem services will impact the viability of PUES, particularly in cases where services are provided by private commercial landowners who are most dependent on land for their livelihoods.…”

Section: Key Considerations For Puesmentioning

confidence: 99%

Urban ecosystems: A new frontier for payments for ecosystem services

Richards¹,

Thompson

2019

People and Nature

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Urban ecosystems provide many benefits to people, including regulation of environmental conditions, recreational opportunities, and positive health impacts. However, many urban ecosystems are under pressure from increasing urbanisation, because the economic benefits they provide are rarely captured by the people who own and manage them. Such ecosystems are seldom economically competitive compared to more profitable residential, commercial, and industrial land uses. To develop more sustainable cities, we require new approaches for encouraging and enabling interventions that maintain, improve and create urban ecosystems. Payments for ecosystem services (PES) schemes are increasingly used to incentivise conservation and changes in environmental management in rural settings, but this approach has rarely been considered in cities. Here, we explain how payments for urban ecosystem services (PUES) could help protect, restore, and manage urban ecosystems. To implement PUES, we must understand the differences between various public and private actors who could potentially provide or benefit from urban ecosystem services. For example, utilities companies could pay for reduced water treatment costs via deculverting streams, homeowners could pay for improved stormwater management via increasing permeable surface area, and business proprietors could pay for street tree installation and maintenance to provide shade and reduce air conditioning costs. Urban densities, land values, and land tenure will impact the types of PUES projects that are most likely to be viable. To be successful, PUES will require an improved understanding of urban ecosystem service science—particularly how service provision changes under different land management practices. Nevertheless, because of the high densities, co‐location, and wide variety of stakeholders that live in cities, there is potential for PUES to become an innovative funding source to support future urban ecosystem management. A plain language summary is available for this article.

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Metropolitan Land Values

Cited by 76 publications

References 16 publications

Marginal and average prices of land lots should not be equal: A critique of Glaeser and Gyourko’s method for identifying residential price effects of town planning regulations

Marginal and average prices of land lots should not be equal: A critique of Glaeser and Gyourko’s method for identifying residential price effects of town planning regulations

Marginal and Average Prices of Land Lots Should Not Be Equal: A Critique of Glaeser and Gyourko's Method for Identifying Residential Price Effects of Town Planning Regulations

Urban ecosystems: A new frontier for payments for ecosystem services

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