Download - Land Prices and Regulation
Economic Geography, Jobs, and Regulations:
The Value of Land and Housing
Nils Kok Maastricht University
AREUEA Meetings, Denver January 2011
Paavo Monkkonen University of Hong Kong
John M. Quigley UC Berkeley
Land in housing production Value of urban land is difficult to observe Price of land is a basic indicator of the attractiveness of a specific
site and the amenities available at that location.
Variations in price of land affect cost of housing and spatial variations in density of population.
Determinants of rural land values in the US are well documented (Alston, 1986; Goodwin, et al., 2003).
Urban land values inferred from transaction prices for housing, based on assumptions about production function (Davis and Heathcote, 2007; Davis and Palumbo, 2008). Does not account for intra-metropolitan variation in land component
Observations on sales of urban land are scant…
…or are they? Manhattan: 90 transactions of vacant land per year, ‘99-’06 Andrew Haughwout, et al, 2008
Value of land: determinants and consequences Economic geography, jobs, and regulations
“What are the determinants of urban land prices in the San Francisco Bay Area and how does they affect house prices?”
First attempt to measure land prices and its determinants directly (Davis and Palumbo, 2008)
Aims to understand better the intra-metropolitan relation between topography, demographics, regulation, and land prices (Saiz, 2010)
The San Francisco Bay Area: Substantial variation in economic geography
Proximity to jobs and economic conditions Wide variations in topography – elevation, slope, earthquake risk Exposed to different levels of public services
Infamous for restrictive pattern of land-use regulation
Data Nine-county San Francisco Bay Area, 1990 – 2010 7,278 complete and geocoded land transactions, CoStar
Employment access: jobs within 45 minutes of travel time (Wachs and Kumagai, 1973)
Most jobs are in East Bay, but some locations in central city command higher prices.
Job access and land value Distance and cumulative opportunity measure Location relative to CBD: airline
distance to SF Ferry Building
But: decentralization of workplaces. Just 14 percent of jobs still in SF (2003)
Results (I): accessibility, use, and land prices
Indicators of land condition and proposed use included Income growth instrumented by 1980-1990 income growth API score instrumented by census tract demographic data in 1990
Results (II): topography, demography and prices Elements of economic geography have distinct influence
Regulation and land prices 110 independent jurisdictions in Bay Area alone Cities are often afforded great freedom to regulate land use
Wharton Regulation Index (Gyourko, et al., 2008)
California-specific regulation measures Survey of Planning Director in each city (Glickfield and Levine, 1992)
Restrictiveness Index (e.g., building permits) Hospitality Index (e.g., “fast-tracking”)
Survey of regulatory structure SF Bay Area (Quigley, et al., 2007) Independent reviews and approvals required for building permit Number of reviews municipal authorities required for zoning change Estimate of average delay between request and decision (months) Number of stakeholders involved in land-use decisions
Endogenous regulation measures instrumented by popular vote for: California’s Prop 13 (substantial property tax rollback, 1978) Ronald Reagan (national election against Jimmy Carter, 1980)
Results (III): regulation and land prices Stringency of regulation has powerful effect
If average delay were increased by one st.dev., or 8 months, land prices would be increased by 16 percent, ceteris paribus
Findings corroborate with many others, e.g., Glaeser and Gyourko (2003)
Land prices and house prices Transactions of single-family lots and single-family homes Intra-metropolitan variation in the effects of economic geography,
jobs, and regulation on land prices
The link between land prices and house prices (Davis and Palumbo, 2008):
(1)
where is the sum of physical capital , and the land it is built on and stocks of capital and land are valued at current prices
We obtain quarter year data on average transaction prices for single-family homes in each of the 110 cities in the Bay Area, 1990 – 2010 (source: DataQuick)
Data matched to 902 transactions of single-family lots in CoStar file
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Land values as fraction of average house prices The importance of land is substantial and increasing
Land represents about 34 percent of the selling price, on average Fraction varies between 31 percent (’90-’95) and 43 percent (‘05 –’10) Davis and Palumbo (2008): 75 percent (1984) to 89 percent (2004) in
the City of San Francisco
Regressions are re-estimated under changed economic conditions Estimate changes in house values using (predicted) land prices
“Move to flatland”: elevation and hilliness set to zero, fault lines one SD away “Improve schools”: improve API scores by one SD “Suburbanization of jobs”: equalize job density throughout region “Reform regulation of land use”: reduce restrictiveness measures by one SD
Price effects of changing economic conditions Counterfactual estimates: Bay Area, SF, and suburban areas
Comparison of with other indexes Transaction-based land index Case-Shiller house price index Construction cost index
Land prices, house prices, and capital costs Summary Comparison land price indexes Transaction-based land index Inferred land price index (Davis
and Palumbo, 2008)
Conclusions and implications Important links among geography, regulation, and land prices Land prices in urban areas are typically inferred from housing
transactions, making assumptions about production function and capital costs.
This paper exploits a unique source of urban land transactions in the San Francisco Bay Area.
Intra-urban variations in topography, demographics and amenities are quite important determinants of land prices.
Restrictiveness of legal environment drives up value of land.
Both economic geography and regulation directly affect single-family house prices.