Best Land Use with Negative Externalities: Determining Land Values from Residential Rents

Roland Fuess (), Jan A. Koller () and Alois Weigand
Authors registered in the RePEc Author Service: Roland Füss ()

No 1705, Working Papers on Finance from University of St. Gallen, School of Finance

Abstract: The value of land is determined by the locations' attractiveness and the degree of regulation. When land regulations are binding, e.g. when a restriction on the maximum floor area ratio exists, the best use 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 residential rents. 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 urban 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: C1 R3 R5 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2017-04, Revised 2019-05
New Economics Papers: this item is included in nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:usg:sfwpfi:2017:05

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