Bid Rent Theory
The Bid Rent Theory explains how the price of land for different uses varies with distance from the central business district (CBD) in urban areas. It suggests that land closer to the CBD commands higher rents due to its accessibility and proximity to economic activities, while land further away has lower rents. This theory helps to understand urban land use patterns and the spatial organization of cities.
6 Key excerpts on "Bid Rent Theory"
eBook - ePub- J. Gabszewicz(Author)
- 2013(Publication Date)
- Taylor & Francis(Publisher)
...A bid rent function transforms indifference curves in commodity space into indifference curves in urban space, i.e., bid rent curves. It is with these indifference curves defined in urban space that we will be able to graphically analyze the locational choice of the household (or firm). Moreover, since bid rent curves are stated as a pecuniary bid per unit of land, they are comparable among different land users. We will therefore be able to analyze competition for land among different agents, again, graphically in urban space. Furthermore, this bid rent function approach will enable us to conduct global analysis in contrast to the traditional local analysis via differential calculus. The same approach will be used in dynamic models of Section 4 by replacing the bid rent function with the bid (asset) price function of land. 1. BASIC THEORY OF RESIDENTIAL LAND USE The simple models developed in this section serve as bases or building blocks for developing more complex models in the later sections. The models we will be dealing with are based on the following set of simplifying assumptions. The city is monocentric. That is, it has a single, prespecified center of fixed size called the central business district (CBD). All job opportunities are located in the CBD. The transport system in the city is radial and dense in every direction; it is also free of congestion. The only travel is commuting of workers between residences and work places in the CBD. Travel within the CBD is ignored. The city is on a featureless plane, where all land parcels are identical, ready for residential use without further improvement. No local public goods or bads are in evidence, nor are there any neighborhood externalities. The only spatial characteristic of each location in the city that matters to households is its distance from the CBD. Thus, the urban space can be treated as if it were one-dimensional...
eBook - ePubReal Estate Economics
A Point-to-Point Handbook
- Nicholas G. Pirounakis(Author)
- 2013(Publication Date)
- Routledge(Publisher)
...This stems from the fact that agriculture relies mostly on non-transferable inputs, chiefly the land itself. In contrast, manufacturing relies on transferable inputs – like raw materials, many of which may be brought from overseas – so access to supply sources, if these are domestic, may matter more than access to markets, many of which may also be international rather than domestic anyway. If supply sources, or customers, are regional or international, a manufacturing firm's domestic location criterion may be access to a harbour or train station (and even that may not be crucial if the road network is good); or the criterion may be access to labour, which means that proximity to a city from a fringe location may matter more than nearness to its CBD, especially if the transport network between the firm's location and residential sectors or suburbs is good. Essentially land-use-pattern theory attempts to explain how a bid-rent (or bid-price) curve is formed. The bid-rent (or bid-price) curve shows the maximum rents (or prices) that are paid at various distances from some focal point, such as the CBD. Strictly speaking, the rent-gradient (or land-price-gradient) is the slope of the bid-rent (or bid-price) curve (although sometimes the two terms are used interchangeably). In traditional formulations, the rent-gradient is negative, reflecting decreasing rents with distance from CBD. However, if a CBD loses its advantage in terms of agglomeration economies, or if other nuclei of activity or interest arise in an urban area (like town-like suburbs along or near motorways), it is possible for a bid-curve from a city centre to become upward-sloping, or, more likely, to be broadly downward-sloping, but with significant humps here and there in the urban landscape...
eBook - ePubThe Economics of Property and Planning
Future Value
- Graham Squires(Author)
- 2021(Publication Date)
- Routledge(Publisher)
...Bid-rent theory suggests that rents beyond the urban core (in a monocentric city) become lower, with competing land use classes in relation to the core, superseding each other over time. For instance, if the industry moves outwards to benefit from lower rents, new brownfield land use emerges in the core for commercial office development. From a residential land use perspective, spatial concentrations and categories can form along socioeconomic differences such as ethnicity and age. Furthermore, critical political economy thinking of a structural nature can posit that low-income residents have fewer financial options to choose a move to the suburbs. Thus spatially, we see low-income households living near decaying industrial sites or ones that have become new brownfield developments. Late 20th-century and early 21st-century industrialisation has relocated tech industrial spaces to the periphery of cities near good transport, as well as clustering around high paid service spaces in the core that would encourage brownfield (re)development. Development land on the periphery is simultaneously influencing the emergence of brownfield land in the centre of cities. For urbanisation in the centre, we can argue that this new contested frontier is only viable for development in wealthier pockets and developments that can price out still functioning low-income neighbourhoods. One essential point is that there may only be a shift from decay towards infill and renewal, if the initial stock being ‘thinned out’ is of sufficient quality. If not, large-scale demolition will be the approach to brownfield development, as part of a broader renewal and regeneration project. Neighbourhood quality is also vital place making, with social factors such as proportional concentrations of crime and access to good schools. This means that higher-income residents may be reluctant to live on brownfield sites because of poor environmental quality...
eBook - ePubUrban and Regional Economics
Marxist Perspectives
- M. Edel(Author)
- 2013(Publication Date)
- Taylor & Francis(Publisher)
...4. RENT THEORY AND SPATIAL SEGREGATION The spatially uneven accumulation of capital and labor implies interaction with land use. One aspect of this interaction involves land rent (or its capitalized equivalent, land value). As accumulation is drawn to a site, the rent that can be demanded for use of land there may increase, while the rent itself can affect how much accumulation occurs there. (Land rent is to be distinguished from the rent of buildings, which includes interest and amortization on the capital invested in the structures.) Orthodox economics generally represents land rent as a passive reflection of the ‘productivity’ of capital and labor in different sites. Landownership and the attempt to collect rent do not affect equilibrium price or land use, except in limited cases of government or monopoly interference with market processes. In contrast, Marxist political economy depicts a more active role for landownership and rent in the economic process. Landownership institutions are necessary for capitalist accumulation, but they necessarily also create problems for that accumulation. Conflicts with landowners complicate the class conflict between capital and labor. The actions of landlords and the social institutions of landownership may affect prices throughout the economy. Land rent may be paid out of either the wages of labor, or the returns to capital (either in generally or in particular industrial or financial sectors). Sorting out these possibilities, and their impact on land use, is the domain of ‘rent theory’. This theory studies the rules that govern payments for land (and other natural or spatial conditions of production) and the differential power of landlords in different places, with different social conditions or land qualities...
eBook - ePub- Ralph Turvey(Author)
- 2022(Publication Date)
- Routledge(Publisher)
...It is that to any one builder alone it may appear that land values determine house prices. From his point of view there is a going price to be paid for land, just as there is for bricks and for bricklayers. Thus he can regard what he pays for all his inputs as determining the cost which he has to recover in the price of his product. It seems to follow that a rise in any of these items, including land values, will increase the prices of new houses. But this is to put matters the wrong way round for analysis of the market as a whole. What appears to be the case for the individual builder does not hold on the aggregate level. The values of sites depend upon the demands for them of all the competing builders, and these demands are derived from the demand for houses. What we have been talking about is related to the theory of ‘rent’. When first developed by Ricardo it related to the rent of agricultural land. Refinement by successive generations of economists has made the ‘rent’ of economic theory different from rent in the everyday sense. An economist, for example, may claim that much of the Beatles’ earnings has been ‘rent’, although some rents are also ‘rent’. In this chapter I have not tried to explain ‘rent’, since it is a rather platitudinous theory best reserved for orthodox textbooks. It is, in any case, often possible to explain how the economy works without using a private language....
...One way to distinguish these themes is along the lines of how they explain or understand rent. One approach focuses mainly on the thing that rent is paid for. That is, this approach emphasizes the ‘thing-ness’ of rent by tethering the explanation of rent to a specific type of property bound up in a historically specific system of property rights, a commodity. The rent paid for the use of land is a land rent, for labour, a labour rent and so on. Commodity-based rent theory might well be an appropriate way to characterize this line of reasoning. The other approach, while also acknowledging that rent is paid for commodities, sets about explaining the existence of rent based on how that commodity comes to be exchanged. In this view, rent arises during the process of exchange and can be identified through the formation of prices. Indeed, according to this approach, rent itself is determined by price. The context within which price formation and exchange occurs is, at least in this framework of knowledge, the market. More importantly, though, for the concept of economic rent is the fact that the degree of competition in the market not only determines the level of rent but is the very basis for it. A perfectly competitive market eliminates economic rent according to neoclassical rent theory because there would be no reason to purchase factors of production above their equilibrium price. For this reason, this approach might well be characterized as competition-based rent theory. Both approaches attempt to understand the same thing but through different avenues of inquiry. It makes sense then that there would be overlaps and points of intersection. It would be difficult, for example, to conceive of a rent being paid for the use of some type of commodity, like land, in the twenty-first century removed entirely from the influence of land markets. Discussions of rental prices for housing are almost always carried on in the context of what is happening in the real-estate market...
