COMM 306 final notes PDF

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Download COMM 306 final notes PDF

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COMM 306: Urban Land Economics Dynamics value = net operating income (NOI) / cap rate - cap rate = (g-r) - value is high if denominator is low net operating income = income - expenses

https://www.youtube.com/watch?v=kVwHvliV1pA

SA

Quadrant 1: Demand-Supply - Rent grows when demand grows - Rent shrinks when construction exceeds depreciation of stock - "Inelastic side bears the burden" o Supply elasticity determined in quadrant 3 o Demand elasticity varies by setting (e.g. commercial space)

o Elasticity of demand for output o Elasticity of labor supply o Space demand more elastic if wages don't absorb capacity - Constant growth rate: demand and net construction grow equally Quadrant 2: Price = Rent/Cap Rate - Cap rate should reflect o Riskless rate o Plus risk premium o Minus growth expectation - Compare sectors and locations, e.g. here - Graphically: higher cap rate => steeper slope - Risk premium we will discuss a bit later o Particularly challenging for residential o Commercial: standard asset pricing might be reasonable Quadrant 3: Price = Marginal Cost - (Holds if no zoning constraint) o Glaeser-Gyourko measure of zoning "tax" - Construction is highly cyclical o Key part of business cycle Quadrant 4: Stock Adjustment - depreciation or destruction of stock - construction adds to stock - flow vs stock o construction flow, market quantity- stock

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cyclical nature of price and demand due to delay of construction forward looking- prices will fall as construction is closer to completion not forward looking- more supply than anticipated becomes available so prices drop cap rates tend to be forward looking due to anticipating more growth and demand in certain areas e.g. residential housing is higher than retail (move to online) myopia- short sightedness with expects in demand and supply- reflecting in price in equilibrium stock and flow are equal the indirect utility with respect to housing price and distance is 0 because if not that would mean one place is better transportation / housing consumption = bid rent curve

Roback Model

The Monocentric Model Model basics:

Bid rent curves:

Equilibrium price levels:

A single open city:

Urban (Monocentric) Growth

Modifying Monocentric Vintage effect:

Issue related to vintage effects:

The rural-urban boundary

Subcentres

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location boundary changes so convenience relative to distance changes distance and commuting costs per distance boundary grows fast if there is little available land close but buildable land far away eta- price elasticity theta- derivative of rent to distance marginal to average land should be associated with price growth cities with more dispersed employment (less monocentric) usually experience less price growth

Sprawl and Zoning -

t/h is what needs to be compensated for moving one unit farther boundary grows more when location premium (theta) is bigger

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value = div/r-g where div = rent – expenses Toronto has more buildable land than Vancouver if you have less land, you need more capital (as you have to build vertically which is more expensive) since land is more expensive downtown, you will make the most of it if you build taller

Is sprawl a market failure?

Open space and amenity efficiency:

Open space amenity:

Congestion and sprawl:

Taxes and sprawl: Other government policies and sprawl: Urban growth boundaries: Height restrictions and sprawl: - flatter

gradient if h forced larger

Zoning by land use type:

Zoning and monopoly vs competition:

Is zoning about monopoly power or amenity:

Traffic and Congestion -

at a social optimum, it makes sense that there would be congestion externality is difference between social and private cost (should be taxed?) environmental externalities can be large T = number of cars

Congestion Externality:

Midterm Review Roback Model:

Monocentric City:

Monocentric Extensions:

Managing Externalities: - sprawl and market failures- need for sprawl indicates market failure? - some responses o zoning  height restrictions  land use separation  urban growth boundaries o taxing or subsidizing development of rural land o congestion or other road pricing

Housing Demand Income and price elasticity:

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the higher the cost of housing the higher the b exponent? t- effect of income on housing if income rises by 20%, housing consumption will rise by less than 20% if demand is inelastic, a moderate increase in quantity will lead in a big increase in price increase of 1 in income leads to less increase than 1 in housing consumption

repeated sales analysis can be inaccurate- homes depreciate and can be torn down, renovated etc. demand curve has been shifted out which has increased prices which has made builders want to build more as it is more lucrative be able to derive meaning from regression

Housing Demand - income and price elasticity

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function which relates selling price to various attributes

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^ interest rates give steeper slope ^ your income, ^ user cost, ^ tax rate the lower the cost of capital for landlords, the more ppl who find it more lucrative to rent as there will be more supply/lower prices

Housing Policy -

why is there redistribution?

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elastic vs inelastic inelastic is absolute value less that one, elastic is absolute value bigger than one

Local Public Goods -

misallocations in asset/commodity markets result in DWL The income effect looks at how changing consumer incomes influence demand. The price effect analyzes how changes in price affect demand. housing voucher increases housing consumption more than if you gave them the voucher in cash-> inefficiency if there are charges on redevelopment, supply shifts inwards, prices increasethis can decrease demand for land depending on elasticity of supply of developable land

Pollution

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tax may only be set equating to negative externality in their area without accounting for impacts in other areas- undercharge of pollution sprawl leads to more driving

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having high density of ppl living downtown makes public transport more feasible- eco friendly

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tax on market which creates negative externality

Crime -

crime- urban disamenity 1 more policeman will make a bigger difference in rich neighbourhood where there is less crime

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criminals are in competition with each other, if there is too much competition it is not lucrative enough. if there is little competition more will enter the illegitimate market

Great Financial Crisis and Housing

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The subprime meltdown was the sharp increase in high-risk mortgages that went into default beginning in 2007. The housing boom of the mid-2000s, along with low-interest rates, led many lenders to offer home loans to borrowers with poor credit.

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When the real estate bubble burst, many borrowers were unable to make the payments on their subprime mortgages. The subprime meltdown led to the financial crisis, the Great Recession, and a massive sell-off in the equity markets. - housing bubble, cheap mortgages, borrowers couldn’t pay for them, lenders became in position of larger quantities of real estate assets

Housing Affordability -

house price index measures % increase in price changes in residential housing patterns with socio-political events such as financial crash or covid if geography is unideal can be difficult to increase supply same increase in q will have greater increase in price per sqft if demand is more inelastic...