Determining Land Values from Residential Rents

Roland Füss (), Jan A. Koller and Alois Weigand
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Jan A. Koller: c-alm AG, Konradstrasse 32, 8005 Zurich, Switzerland

Land, 2021, vol. 10, issue 4, 1-29

Abstract: The value of land is determined by the locations’ attractiveness and the degree of direct land use regulation. When regulations are binding, e.g., when a restriction on the maximum floor area ratio exists, the land price can be directly expressed as a function of the maximum floor area ratio and local amenities. We show theoretically and empirically how this approach can be used to determine land values from rental prices of residential structures built upon that land. From our empirical results, we derive two main sources for a monocentric structure of land prices. First, the location attractiveness of centrally located dwellings makes land prices more expensive. Second, as the maximum floor area ratio is high in central areas, the regulation works as a multiplier for land prices and inflates prices accordingly. Our model gives insights into the determinants of urban land prices and provides a useful approach for land appraisal in regions where land transactions are scarce.

Keywords: apartment rent; land use regulation; floor area ratio (FAR); land prices; monocentric structure (search for similar items in EconPapers)
JEL-codes: Q15 Q2 Q24 Q28 Q5 R14 R52 (search for similar items in EconPapers)
Date: 2021
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