Chapter Three
Urban Land Use Pattern, Land Value, and Role of State
in Urban Land Management
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This chapter examines the spatial structure of cities, exploring the market
forces and government policies that determine land-use patterns within an
urban area.
It is useful to differentiate between two terms, land rent and land market value.
Land rent is the periodic payment by a land user to a land owner, and
Land market value is the market price of land that a buyer pays to a seller to own
the land.
Hence, the two terms are different in that, rent is only for the use of land but
price is not only to use but also to own it.
In the analysis of land use pattern and valuation we use rent and used to refer
the price of land
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3.1 Urban Land Value and Land Price
Urban land: is a land that used for urban activities that include
but not limited to;
Urban production
Exchange activities
Residential
Urban land valuation: is the process of determining the true
worth of urban land and the improvement made on it.
The value of land shows its usefulness and how much it worth, that is;
It determines the market price of the land
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The price of land is mainly determined by its location and its
intrinsic values which include the following important factors.
The quality the area
Utilities and improvements made on it
Ease of access
Demand and supply of the land
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3.2 Bid Rent and Location Gradients: the
importance of relative location
The following terms are the basic concepts that you need to
understand and know to making the economic importance of
location.
Land use: allocation of land for different urban activities.
Land use pattern is determined by the value of land to the users that differs
across different activities
Land value by itself mainly depends on or related to the distance of its
location (transportation cost to get to it)
The location decision of firms and households in return affected by the
comparative advantage and external economies of scale
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Rent: is the amount one pays for the use of land.
Bid rent: is the amount that each activity willing to pay for the use of land in
an auction process for land.
Location rent: is the way in which rent changes with distance.
The bid process continues until;
Bid rent = Location rent
Bid rent function: is a graph that shows how rent declines with the distance
from the central business district (CBD).
It explains how land value is related to its accessibility.
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Determination of land use
Assumptions;
Many identical firms in a competitive market
Privately owned land
Product market is located at the center of a city
Even distribution of households in the city
Uniform for tests
Given these assumptions, we can certainly conclude that,
the value of land is high at and near to CBD, and
land value declines as the distance from the CBD increase
This relationship between the value of land (rent) and distance is shown by the
curve called bid rent function.
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Rent per
acre
Bid rent function
CBD Distance
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Relax the first assumption and assume that;
there are two different types of activities: retailing and manufacturing
retailers want to locate near to the CBD than manufacturers
This implies that, retailers willing to pay more rent for land use
than manufacturers.
Hence, the bid rent function of the manufacturing activity become
flatter than that of retailers.
This situation is illustrated in the following figure.
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Retailing
Manufacturing
CBD d1 d2 Distance
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Illustration
d1 is the point at which land use changes from retail to manufacturing activity
The spatial equilibrium is achieved when land is rented for highest and best
uses.
i.e, when land is allocated to the use that earns the highest location rent.
Between CBD and d1, retailers outbid manufacturers (they willing to pay more
rent for land use than manufacturers)
Thus, retailing activities located between the area CBD and d1
Between d1 and d2, manufacturers outbid retailers (they willing to pay more
rent for land use then retailers)
Thus, manufacturing activities located between d1 and d2
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Relax the fourth assumption and assume that;
There is uneven distribution of households in the city
Households want to reside in open and less density areas
These assumptions implies that, households want to live relatively far away
from CBD than retailing and manufacturing activities.
As a result the residential bid rent function become more flatter than the others.
This implies that, households are willing to pay less rent for land use than the other
two activities.
This situation is illustrated in the following graph.
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Retailing
Manufacturing
Residential
CBD d1 d2 d3 Distance
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d1 the point at which land use changes from retailing to
manufacturing activity
Retailers location is between CBD and d1
d2 the point at which land use changes from manufacturing to
residential uses
Manufacturing location is between d1 and d2
Residential location is between d2 and d3
Urban users do not value land beyond d3
The value of land beyond the distance d3 falls to the value of agricultural
land or to other rural land uses
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As it discussed above, land value is high at CBD; as a result there
are relatively,
Intensity of urban land use, and
Taller buildings at and near CBD
The rate at which the urban land value declines as distance from
CBD increase is shown by the curve called urban land gradient.
It is the locus of the upper part of the bid rent function graphs of the three
activities (retailing, manufacturing, and residential) in our previous
example.
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Rent per
acre
Urban land gradient
CBD Distance
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3.3 Land Market, Speculation, and
Government in the Urban Economy
Land market exists if it is possible to exchange rights in land use and administration.
Efficient land market requires;
Well defined and enforceable land property rights
Clear policies and enforceable laws
Institutional responsibility and accountability
Existence of efficient land market result in;
Transparency
Build sense of ownership that leads to better land management and preservation
High investment
High economic growth
Better social wellbeing
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Land Speculation
Land speculation occurs when land is kept unsold in expectation
of high price in the future.
It result in;
Constraints in land availability
Rises land price
Forces households and businesses to locate in remote and less
productive areas
Underdevelopment
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3.4 Coping Mechanisms of the Poor:
Informal land market
Urban poor mainly engaged in informal land market and uses it as
coping strategy against poverty.
They involve in such informal activities due to;
High transaction cost of formal land market
Affordability and accessibility
Poorly defined and/or absence of land property rights
Bureaucratic procedures
Their informal settlement
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The practice of informal land market result in further problems
such as;
Informal occupants that may result in forceful eviction
Slum areas
Lack of security tenure
Underdevelopment
Loss of government revenue
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3.5 Bringing urban poor to formal land market
Efficient land management system requires the development of efficient formal
land market which in turn requires government intervention via its policies.
Land reform – land tenure and ownership policy
Regulations
Formulation and implementation of land use laws
Zoning, resettlement or relocation, etc
Increasing accessibility to land
Slum upgrading
Market incentives
Example, house subsidy, tax, etc
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