City Characteristics, Land Prices and Volatility
61 Pages Posted: 17 Oct 2018
Date Written: September 25, 2018
We develop a general equilibrium model that describes the evolution of land prices and rental rates in a monocentric city. The model explores how differences in a city's borders and land use, i.e., zoning and the presence of undevelopable land, as well as differences in transit technology, i.e., cars versus rail, affect both the level and volatility of land prices. We also consider the effect of alternative production technologies that have different land use intensities and agglomeration externalities. Our analysis indicates that rental rate and price volatility is amplified when agglomeration externalities are stronger, and is dampened when land plays a larger role in production. In some settings land supply constraints and transit costs make rental rates more volatile, but in other settings, they dampen volatility.
Keywords: land supply constraints, city characteristics, city configuration, land rent volatility, rent to value ratio
JEL Classification: R12, R14
Suggested Citation: Suggested Citation