City Characteristics, Land Prices and Volatility

61 Pages Posted: 17 Oct 2018

See all articles by Sheridan Titman

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Guozhong Zhu

University of Alberta - Department of Marketing, Business Economics & Law

Date Written: September 25, 2018

Abstract

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

Titman, Sheridan and Zhu, Guozhong, City Characteristics, Land Prices and Volatility (September 25, 2018). University of Alberta School of Business Research Paper No. 2018-709. Available at SSRN: https://ssrn.com/abstract=3255077 or http://dx.doi.org/10.2139/ssrn.3255077

Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Guozhong Zhu (Contact Author)

University of Alberta - Department of Marketing, Business Economics & Law ( email )

Edmonton, Alberta T6G 2R6
Canada

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