The Valuation of Urban Land: Comparison and Critique of Three CAMA Methods

50 Pages Posted: 7 Jul 2020 Last revised: 8 Jul 2020

See all articles by John M. Clapp

John M. Clapp

University of Connecticut - Department of Finance; Homer Hoyt Institute

Thies Lindenthal

University of Cambridge

Date Written: June 1, 2020

Abstract

We present new methods for urban land valuation based on a high degree of irreversibility given that a substantial structure is present on the land. Irreversibility implies that land and structure value function as a whole until the option to tear down and redevelop becomes valuable. In a typical situation, where structures are far from teardown, irreversibility implies that land and structure value change at about the same rate over time. Land valuation methods based on irreversibility are compared to valuations based on vacant land sales and on land residual methods (land value equals property value minus the depreciated cost to build); both methods predict that land value is much more volatile than structure value whereas irreversibility implies a more stable ratio of land value to property value.

We fit all three methods to Maricopa County assessor data during a recovery period (2012-2018). Results show that the land value ratio behaves as predicted by irreversibility, not by the land residual or vacant land methods. We suggest new mass assessment procedures based on the value of the option to redevelop. We provide evidence that our procedures merit further study.

Suggested Citation

Clapp, John M. and Lindenthal, Thies, The Valuation of Urban Land: Comparison and Critique of Three CAMA Methods (June 1, 2020). University of Connecticut School of Business Research Paper No. 20-09, Available at SSRN: https://ssrn.com/abstract=3617978 or http://dx.doi.org/10.2139/ssrn.3617978

John M. Clapp (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
860-983-3685 (Phone)
860-486-0349 (Fax)

Homer Hoyt Institute ( email )

United States

HOME PAGE: http://hoytgroup.org/weimer-school-and-fellows/

Thies Lindenthal

University of Cambridge ( email )

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

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