The Timing and Density of Urban Development
38 Pages Posted: 12 Aug 2012 Last revised: 25 Oct 2012
Date Written: October 25, 2012
This paper analyzes the timing and density of urban development using a new intertemporal model featuring stochastic housing demand, a finite price elasticity of demand, cross-sectional variation in the amenity value of land, and property taxes. Equilibrium rent and house prices in a city are determined by the value-maximizing actions of price-taking landowners who decide when and how to develop their land. Building density varies throughout the city and is greatest in locations where amenity values are highest. Building density is greatest, and developed-land area is smallest, in cities with substantial intracity variation in amenity values, high demand volatility, and low tax rates on undeveloped land. High tax rates on developed land lead to a small land area but have no effect on building density.
Keywords: urban economics, development density, general equilibrium, real options
JEL Classification: D51, D92, H71, R14, R31
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