Determinants of urban land market outcomes: Evidence from California

Our understanding of the effects of land use regulations and other aspects of urban form has been hindered by limited aggregate data and gradual temporal changes in policies. More widely available GIS data on land use and land economics presents opportunities to overcome these obstacles. This study was undertaken to explore the potential for land economics research that draws on parcel level spatial data for urban land markets, and uses differences across a sample of cities as the source of variation. Policy obstacles such as protected open spaces and other land use regulations, like the limitations caused by land forms such as water bodies and mountains, can be expected to alter the supply of land in ways that will be reflected in land market outcomes across cities. Based on a sample of data for 46 California cities, this exploratory analysis analyzed land market outcomes as a function of population, income and other factors in a closed-economy model, including a ratio that measures the concentration of developed lands within a city's radius or perimeter. The approach produced robust relationships consistent with other studies, and results consistent with expectations not just in terms of the signs of the estimated coefficients but in terms of their magnitudes as well. Indeed, the elasticity of land development with respect to population has been estimated to be 0.79–0.82 based on open city models. The evidence suggests that both land forms and land use regulations have a positive effect on land prices; however, it was not possible with the current data to distinguish the amenity effects of proximity to oceans and mountains from the supply constraints on radial city expansion. The analysis, nevertheless, provides encouraging evidence for future research of this kind.

► Spatially explicit parcel level land use and land value data from 46 California cities are examined.
► Reduced form land market models are estimated as a function of population, income and other variables.
► Robust relationships were estimated in a closed-city model.
► Evidence suggests both land forms and land use regulations positively affect land prices.