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Determinants of industrial land prices
Huub PloegmakersErwin van der Krabben
ERES Conference, 15-18 June 2011, Eindhoven
“Location which the land-use plan deems suitable for activities in the branches of commerce, manufacturing, commercial services and industry”
Theories of Land Prices
• Alonso-Muth model
• Little attention to the influence of developer behavior in
the determination of land prices
• “While market outcomes such as prices are always central to the
discussion, there is generally comparative neglect of the detailed
rules and mechanisms through which prices are formed” (Hodgson, 2008, p. 252)
A Partial Theory of Land Prices
• Restricted in explanatory properties
• “This article presents an attempt to explain
land prices in the particular case of the
Netherlands (…) where land is supplied
publicly” (Needham, 1992: p. 670)
Average maximum price per square meter in 2008
3,00 – 72,00
72,00 – 117,00
117,00 – 165,00
165,00 – 222,00
222,00 – 325,00
325,00 – 565,00
25,00 – 70,00
70,00 – 108,00
108,00 – 160,00
160,00 – 215,00
215,00 – 300,00
300,00 – 407,00
Economic principles
Maximum prices:
• The price at which other municipalities in the
region sell building plots;
• The residual value of the land
Minimum prices:
• Total development costs
Political Decisions
• Building plots ‘on tap’;
• Chosen mix of land uses;
• Quality of land servicing;
• The amount of land supplied
Quantitative modelling
In Old Institutional economics:• The analysis does not start by building mathematical
models: it starts from theoretical conjectures
concerning causal mechanisms.
• Mathematical and statistical techniques servants of,
rather than the essence of, economic theory.
Model Specification
Land Price + average regional land prices,– regional competition, ± land use type,
=(
Source: Jasper Beekmans
Model Specification
Land Price + average regional land prices,– regional competition, ± land use type, + accessibility, + urban agglomeration)
=(
Variable Proxy Source
Maximum land prices Log of maximum listed land prices IBIS
Average regional land prices
Average of log of maximum listed land prices IBIS
Regional competition
Land supply on industrial estate as a percentage of the total regional land supply
Land supply in municipality as a percentage of the total regional land supply
IBIS
Land use typeDummy variable: Heavy industry site, Business Park, Transport site or Mixed use site
IBIS
AccessibilityDummy variable: accessible by Motorway, Trunk road, or otherwise IBIS
Urban agglomerationDummy variable: urban agglomeration, surroundings of agglomeration, or otherwise
CBS
OLS results
Constant 0,207*** (5,635)
Average Regional Land Price 0,891*** (104,052)
Share of competition (estate) 0,007*** (10,125)
Share of competition (municipality) 0,002*** (7,248)
Land Use Type
Heavy Industry Site -0,348*** (-15,539)
Business Park 0,247*** (12,680)
Transport -0,017 (-0,457)
Accessibility
Motorway 0,213*** (15,164)
Trunk Road 0,119*** (9,449)
Urban agglomeration 0,250*** (17,613)
Surroundings of urban agglomeration 0,143*** (9,935)
Adjusted R² 0,690
Number of observations 6907
Conclusions
• Land prices explained by regional average
land prices, site and locational characteristics
• Model improvement:
-Measurement of regional average prices
-Measurement of accessibility
- Appropriateness of OLS?