Real estate econ 156

Urban forms

Monocentric City - single center

Policentric - many centers, like in Bay Area.

Many city centers have lost population to the suburbs.

Philadelphia's population percentage dropped from 56 to 36 percent 1950 to 1980.

It is partly a flight from blight, crime, and high taxes.

Edge city - outside the center, more employment than residents.

One-story climb law: maximum number of flights of stairs Americans will climb: 1.

Fixed costs of elevators is high, so tend to build > 3 stories.

Model originated by David Ricardo.

A unit of output has a monetary weight t.

u: distance. Transport costs = tu.

w: nonland costs per unit. R(u): land rent at u.

revenue minus costs: pq - wq - R(u) - tqu

If land rent absorbs all the surplus,

R(u) = pq - wq - tqu

Higher rent offsets lower tranport costs.

Suppose two sectors, offices and manufacturing.

They can have different costs tq.

Offices might outbid manufacturers at less than some distance.

Factor substitution

Can substitute capital goods for land. Build higher.

At center, more capital-intensive, higher K/L.

Land increases in value faster than transport costs, reflecting the productivity advantage from more capital-intensive production.

Building height should naturally decline away from the center.

But some types of activity are better carried out in taller buildings, such as convention hotels, hospitals.

Household location.

Residential land also falls in price and rent away from the center, as communing costs are lower at the center.

Why urban decay? Partly: taxation penalizes improvement and enterprise.

Capital goods naturally deteriorate. Taxing maintenance increases the entropy.

Shifting taxation off of improvements promotes maintenance and penalize under-use.