Land Economics

In a market economy, most of the urban land can be freely sold or purchased. Thus land economics are concerned about how the price of urban land is fixed and how this price will influence the nature, pattern and distribution of land uses. The above figure provides some basic relationships between the quantity of land and its price. This mechanism follows the standard market relationship between supply and demand, where an equilibrium price is reached. A quantity of land Q1 would be available at a price of P1. However, what is particular to cities is that the supply is fixed since there is a limited amount of land is available.

• When land is reasonably available (Q1), the price (P1) will be moderate.
• Moving towards the downtown the demand rises, land becomes scarcer (Q2)and the price goes up (P2).
• Moving towards the periphery, more land is available, demand drops (Q3), and so does the price (P3).

Obviously, not every type of activities is willing to pay a price P1. Some may even need a price lower than P3. High land values impose a more intensive usage of space so the highest number of activities can benefit from a central location. The logic behind the construction of skyscrapers is therefore obvious and take place at optimal locations of competition for land. Different type of activities, each having their own land use, are willing to pay different rents.