Determinants of industrial land prices

Huub PloegmakersErwin van der Krabben

ERES Conference, 15-18 June 2011, Eindhoven

“Location which the land-use plan deems suitable for activities in the branches of commerce, manufacturing, commercial services and industry”

Theories of Land Prices

• Alonso-Muth model

• Little attention to the influence of developer behavior in

the determination of land prices

• “While market outcomes such as prices are always central to the

discussion, there is generally comparative neglect of the detailed

rules and mechanisms through which prices are formed” (Hodgson, 2008, p. 252)

A Partial Theory of Land Prices

• Restricted in explanatory properties

• “This article presents an attempt to explain

land prices in the particular case of the

Netherlands (…) where land is supplied

publicly” (Needham, 1992: p. 670)

Average maximum price per square meter in 2008

3,00 – 72,00

72,00 – 117,00

117,00 – 165,00

165,00 – 222,00

222,00 – 325,00

325,00 – 565,00

25,00 – 70,00

70,00 – 108,00

108,00 – 160,00

160,00 – 215,00

215,00 – 300,00

300,00 – 407,00

Economic principles

Maximum prices:

• The price at which other municipalities in the

region sell building plots;

• The residual value of the land

Minimum prices:

• Total development costs

Political Decisions

• Building plots ‘on tap’;

• Chosen mix of land uses;

• Quality of land servicing;

• The amount of land supplied

Quantitative modelling

In Old Institutional economics:• The analysis does not start by building mathematical

models: it starts from theoretical conjectures

concerning causal mechanisms.

• Mathematical and statistical techniques servants of,

rather than the essence of, economic theory.

Model Specification

Land Price + average regional land prices,– regional competition, ± land use type,

=(

Source: Jasper Beekmans

Model Specification

Land Price + average regional land prices,– regional competition, ± land use type, + accessibility, + urban agglomeration)

=(

Variable Proxy Source

Maximum land prices Log of maximum listed land prices IBIS

Average regional land prices

Average of log of maximum listed land prices IBIS

Regional competition

Land supply on industrial estate as a percentage of the total regional land supply

Land supply in municipality as a percentage of the total regional land supply

IBIS

Land use typeDummy variable: Heavy industry site, Business Park, Transport site or Mixed use site

IBIS

AccessibilityDummy variable: accessible by Motorway, Trunk road, or otherwise IBIS

Urban agglomerationDummy variable: urban agglomeration, surroundings of agglomeration, or otherwise

CBS

OLS results

Constant 0,207*** (5,635)

Average Regional Land Price 0,891*** (104,052)

Share of competition (estate) 0,007*** (10,125)

Share of competition (municipality) 0,002*** (7,248)

Land Use Type

Heavy Industry Site -0,348*** (-15,539)

Business Park 0,247*** (12,680)

Transport -0,017 (-0,457)

Accessibility

Motorway 0,213*** (15,164)

Trunk Road 0,119*** (9,449)

Urban agglomeration 0,250*** (17,613)

Surroundings of urban agglomeration 0,143*** (9,935)

Adjusted R² 0,690

Number of observations 6907

Conclusions

• Land prices explained by regional average

land prices, site and locational characteristics

• Model improvement:

-Measurement of regional average prices

-Measurement of accessibility

- Appropriateness of OLS?