Property Taxation and Density of Land Development: A Simple Model with Numerical Simulations

Richard W England and Mohan Ravichandran
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Richard W England: Department of Economics, University of New Hampshire, Durham NH 03824, USA.
Mohan Ravichandran: Department of Mathematics, University of New Hampshire, Durham NH 03824, USA.

Eastern Economic Journal, 2010, vol. 36, issue 2, 229-238

Abstract: This paper presents a microeconomic model of the choice of density for a newly developed parcel of land within a metropolitan region. Analysis reveals that this decision depends upon the anticipated rents, interest rate, construction and operating costs, and tax rate levied on building value. The tax rate levied on the land value of the parcel does not influence density if that tax is fully capitalized into the land price paid by the developer. Because a closed form solution of the model is elusive, we report the results of several numerical simulations. We find that the property tax rate levied on newly constructed buildings could affect the density of real estate development projects.

Date: 2010
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