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

46 Pages Posted: 4 Apr 2017 Last revised: 15 May 2019

See all articles by Roland Füss

Roland Füss

University of St. Gallen - School of Finance

Jan Koller

University of St. Gallen - Swiss Institute of Banking and Finance

Weigand Alois

University of St. Gallen - School of Finance

Date Written: May 10, 2019

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 Ration (FAR), Land Prices, Monocentric Structure

JEL Classification: C1, R3, R5

Suggested Citation

Füss, Roland and Koller, Jan and Alois, Weigand, Best Land Use with Negative Externalities: Determining Land Values from Residential Rents (May 10, 2019). University of St.Gallen, School of Finance Research Paper No. 2017/05. Available at SSRN: https://ssrn.com/abstract=2945459 or http://dx.doi.org/10.2139/ssrn.2945459

Roland Füss (Contact Author)

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland
+41 (0)71 224 70 42 (Phone)
+41 (0)71 224 70 88 (Fax)

HOME PAGE: http://www.sbf.unisg.ch/en/Lehrstuehle/Lehrstuhl_Fuess.aspx

Jan Koller

University of St. Gallen - Swiss Institute of Banking and Finance ( email )

Rosenbergstrasse 52
St. Gallen, CH-9000
Switzerland
+41 (0)71 224-7059 (Phone)
+41 (0)71 224-7088 (Fax)

Weigand Alois

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St. Gallen, 9000
Switzerland

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