land use planning tools lecture 2: land use in the monocentric and multicentric cities adapted from...
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![Page 1: Land Use Planning Tools Lecture 2: Land use in the Monocentric and Multicentric Cities Adapted from Arthur O’Sullivan, Urban Economics, chapters 8-9 Notes](https://reader036.vdocuments.net/reader036/viewer/2022062421/56649cc05503460f949879c0/html5/thumbnails/1.jpg)
Land Use Planning Tools Lecture 2: Land use in the
Monocentric and Multicentric Cities
Adapted from Arthur O’Sullivan, Urban Economics, chapters 8-9
Notes by Austin Troy
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Bid Rent of Firms in the CBD
• Let’s assume a traditional 19th Century city:– Central railroad freight terminal– Central market– Workers travel to center via streetcar– Goods go from factory to railroad via horse cart– Also assume fixed factor production
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Bid Rent of Firms in the CBD
• Profit fn looks same as in chapter 7 = PQ-NC-TC(d)-R(d)
– Profit= price*quantity – nonland costs- transport costs (function of distance) – rents (function of distance);
– TC(d)= cost/ton/mile* distance*quantity
– Then R(d)= PQ-NC-TC(d)
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Freight Costs and Rents
• Freight costs decrease with proximity to city center
• Through leftover principle, rents increase as transport costs decrease
• Hence, there will be a downward sloping bid rent function; it will be linear for fixed factor producers and convex for flexible producers
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Flexible versus fixed producers
Fixed: R(d)= P*Q-NC-TC(d)Flexible: = P*Q-NC-TC(d)-R(d)*L(d),Where L(d) is amount of land used at
distance d; this results in rent function:R(d)= (P*Q-NC-TC(d))/L(d)Flexible farmer substitutes nonland for
land input: spends more on equipment and labor as land gets more expensive
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Flexible versus fixed producers
Flexible produce = factor substitution = lower costs* = higher profits
By leftover principle, higher profits= higher bid rents
Close to city center, land costs are lower; at periphery, freight costs are lower
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Monocentric city firms’ bid rent function
Distance from export hub
Bid Rent Fixed-factor
producer
flexible producer
A
B
The flexible firm outbids the fixed factor firm everywhere but point u’’. At u’, the fixed factor producer uses too much land
u’ u’’
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Nonland versus land inputs for the Flexible producer
Land Amount
Non-land inputs
flexible producer
A
B
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Most central firm type: offices
• Office firms: require 1) lots of meetings and face to face contact, 2)ability to gather, process and distribute information quickly and 3)access to services, like printing, lawyers, designers, accountants, etc.
• This type of firm will have a steep bid rent function because the travel cost of individuals is very high; travel cost is high because their pay rate is high, since it is generally skilled work
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Land use in CBD
• All firms are attracted to center, but only some will be willing to bid enough
• Office firms have steepest bid rent fn, and will occupy the most central land
• Market allocation is efficient, because the office industry has the most to gain from being in the center; manufacturing could gain too, but not as much, so it’s willing to locate a little further out.
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Office vs. manufacturing
• Suppose office firm 1 block from center and manufacturer 5 blocks. If they swapped locations, this would dramatically increase the office firm’s travel cost– Office firm TC= 3min/block*$4/min*200
meetings/month= $2400 per block/month
• So the swap increase TC for office by $9,600/mo, but only saves the manufacturer $800/month in transportation costs (50 tons * $4/ton/block= $200/block).
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Multiple land use rent gradient
Office zone
Manufacturing
zone
Residential
zone
Distance to center
Bid Rent
Office Bid rent
Manuf. Bid rent
Residential bid rent
U’ U’’
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Locational choices
Office Zone
Residential Zone
Manufacturing Zone
U’
U’’
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Locational choices
Office Zone
Residential Zone
Manufacturing Zone
U’
U’’
So workers live on the periphery because they are cheap to transport (i.e. commuting costs are low) relative to cost of moving freight (for manufacturers). For offices, same problem, because of high price of moving executives around for meetings. If office is in suburbs, executive is constantly going to CBD
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Who occupies what?
• Activities are arranged according to transport costs; those with the highest costs occupy the most central land
• Activity with the highest transport cost will have the highest bid rent curve
• All firms have tug-of-war between locating centrally to keep transport cheap, and locating in the suburbs to keep workers’ commute cost lower (and hence pay lower wages)
• CBD wins because cost of freight hauling greater than cost of moving workers
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Housing price function
• In the monocentric model, residents will be attracted towards the center but be outbid by offices and manufacturing.
• Assume no factor substitution, identical 1000 sq ft houses, fixed budget of $300/mo for housing+commuting, commute cost (CC)= $20/mi.
• WTP for housing = $300- CC.
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Housing price fuction
P housing/ sq ft
$.3
$.18
$.06
6 mi 12 mi
D for housing near center pushes up price until rent= budget-CC.
Residents now indifferent among all locations in city
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Housing price function with consumer substitution
• With consumer substitution, residents consume less land as price of land goes up; instead consume more local amenities
• Hence, more central homes are smaller• Flexible residents will outbid fixed factor
residents everywhere but tangency point• Change in P due to distance= , or
negative of (tranpo cost/mi divided by amount of housing consumed)
)(uH
t
u
P hh
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Residential housing price function with consumer
substitution
P housing/ sq ft
$.3
$.18
$.06
6 mi 12 mi
Price w consumer sub
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Residential bid rent function and factor subsitution
• Residents’ housing price fn with consumer substitution drive producers’ factor substitution
• Factor Substitution: Housing producers substitute capital for land as move closer to center; higher density allows residential housing firms to pay the higher cost of land in more central locations. Different from consumer substitution
• Producers’ bid rent functions are convex because of consumer substitution in the housing price function
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Density increases towards center because:
• Consumer substitution in housing pr fn. – P(housing) goes down away from center, so
households consume more housing (i.e. larger dwellings) towards periphery
• Factor substitution in producer bid fn– Price of land goes down as move away because
of housing price function; housing production firms respond by using more land per unit of housing (less density) towards periphery; towards center they respond with greater density
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Changes to Residential Model
• All the following changes in assumptions make cost of commuting greater, and housing price fn/residential bid rent fn steeper:– No time cost to commuting (only monetary cost)>>
time cost to commuting (opportunity cost)– Amenities (shopping, recreation) etc. are evenly
distributed across city>> Amenities concentrated in the CBD
– All households one earner>>two earners commuting to center
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Spatial heterogeneity
• In reality (we’ll get to this later) there is considerable variation in services and amenities throughout urban area
• Schools: suburban areas often have best schools and people will bid up price of housing to live in those districts.
• Same idea with environmental quality, scenic values and tax rates
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Income segregation• Simple monocentric model would suggest that rich
occupy most valuable (central) land• Why is it the opposite?• Households find location providing best tradeoff
between land and commuting cost• Because the rich person consumes much more
housing, they save much more for each move out
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Income segregation
• In other words, MB=MC at much closer point to CBD for the poor
• They have less to gain from moving outward because they can’t afford to consume nearly as much housing (that is, as big houses)
• But their commuting costs are not much less than that of the rich
• As income increases, housing consumption increases faster than commuting costs
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Segregation and Income Elasticity
• Income elasticity of demand for housing is high; that is, housing consumption goes up significantly (is elastic) in response to income increase
• When IEDH is large relative to income elasticity of commuting cost, gap between MB curves will be much greater than gap between MC curves
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Income segregation-High IEDH relative to IECC
MB(poor)
MB(rich)
MC(poor)
MC(rich)
U’ U’’
$20
$40
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Income segregation- similar IEDH relative to IECC
MB(poor)
MB(rich)
MC(poor)
MC(rich)
U’’
$20
$40
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Empirical Evidence
• One study (Wheaton 1977) has found that IEDH is roughly equal to IECC
• If this is the case, then different income groups should be living in the same places
• Other explanations needed
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Other Explanations for Income Segregation
• Newer housing in suburbs: quality is higher, more modern, lower maintenance; poor get stuck with older central city housing
• “Urban flight:” crime, low school achievement, fiscal problems all more common in city centers. Rich can afford to leave
• Large-lot suburban zoning: very common, keeps price of housing high and poor out
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Income Segregation and Bid Rents
u*
BR-rich
BR-poor
Rich BR is flatter:
1.If IEDH > IED of commuting costs or
2. because of the draw of suburban land and the negatives of central city living
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Exceptions
• In some cities, especially in Europe, the opposite is true: rich live in center, which is prohibitively expensive for poor, who live out in suburbs.
• Has to do with level of amenities in the city center (e.g. Paris vs. Detroit).
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Why do poor have steeper housing price functions?
• Slope function
• Increase in income both t and H(u)• If D for housing is more responsive to income than
commuting costs are to income (due to increase in opportunity cost), then rich have flatter curve;that is they have a powerful urge to consume land
• But if Wheaton’s results are correct, the slopes should be the same, so what’s up??
)(uH
t
u
P hh
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Alternative Explanation
• Slope of housing price fn must be affected by other factors, such as:– Tax rates, school quality, pollution, crime
• Central city problems cause demand for suburban land to go up
• If IED for low pollution, low crime, good schools, etc. is high relative to IED for commuting, then wealthy will have flat fn
• That is, wealthy willing to pay more for these goods than the poor are and will outbid them on fringes
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Policy Ramifications
• Policies that help rebuild the inner cities, bring amenities, decrease crime and pollution, improve schools, will bring some wealthy back from suburbs
• Policies that limit exclusionary (large-lot) zoning will help bring poor out to suburbs and allow for higher suburban densities
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Policy Intervention: Labor and land markets
• What happens to business and residential location if we put in a streetcar system?
• Assumptions: no consumer or input substitution (fixed factor), population density the same at all residential locations, business density same in business locations, city is rectangular
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Relative Locations before streetcar
Business bid rent fn
Residential bid rent fn
Agricultural rent
Business zone Residential zone ag zone
Bid rents
Distance2 mi 9 mi
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Now add a streetcar system
• Streetcar decreases commuting costs, tilts residential bid rent fn outwards
• Residential area expands into ag land• Labor supply increases with S(housing)• Increase in labor S decreases wage• Wage decreases causes intercept of residential fn to
shift down, while business bid rent fn shifts up, because costs are lower
• Lower costs mean firms willing to pay more for CBD land, businesses occupy more land
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Relative Locations before streetcar
Business zone ag zone
Business bid rent fn
Residential bid rent fn
Agricultural rent
Residential zone
Bid rents
Distance2 mi 9 mi
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Effect of reduced commute cost
Business zone ag zone
Business bid rent fn
Residential bid rent fn
Agricultural rent
Residential zone
Bid rents
2 mi 17 mi
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Effect of reduced wage on residential bid rents
Business zone ag zone
Business bid rent fn
Residential bid rent fn
Agricultural rent
Residential zone
Bid rents
~2.5 mi 13.5 mi
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Effect of reduced wage on residential bid rents
Business zone ag zone
Business bid rent fn
Residential bid rent fn
Agricultural rent
Residential zone
Bid rents
3 mi 13.5 mi
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Long term equilibrium effects
• Eventually, the shrinking of the residential area brought about by lower wages reduces labor supply, while demand for labor goes up in response to larger business district.
• End result: residential and business districts are now in between original size and largest size following short-term effects; land rent is higher everywhere
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Are there any welfare benefits from streetcar in long term?
• No: commuting is more efficient, but wages are lower and rents are higher in response; this is because it is an “open city.” We assume that any advantages brought about by upgrade are quickly eliminated by in-migration; migration stops when there are benefits offset the costs (lower wages, higher rents).
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Spatial distribution in modern, multicentric cities
• Jobs are generally far from city centers now
• 40% commute from suburban home to suburban job
• Cities are increasingly decentralizing with smaller portion of population in center
• As population shifts outward, density gradients have decreased significantly
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Why are we decentralizing?
• Rising income? This will cause decentr. If IED for housing> IE of commuting. Some studies support this
• Lower commuting costs due to better roads, better cars, transit systems
• Urban problems: old housing, income/racial mix, fiscal problems, crime, education– There is considerable empirical support for this
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Why decentralized manufacturing?
• Intracity truck: in tug of war between desiring to be near workers and be near central export node, the latter began to lose out as trucks reduced price of getting freight to and from the node. I.e. cost of moving freight high relative to moving people in old days; now the opposite
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Why decentralized manufacturing?
• Intercity truck: truck is now competitive with trains and shipping, making central export node less relevant. This decreased freight costs associated with suburban settings. The biggest single factor increasing cost effectiveness of intercity truck was interstate highway system.
• Now manufacturers locate close to suburban highway interchanges. Beltways maximize access to interstates; result in manufacturing ring
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Suburban manufacturing without truck
Freight cost
labor cost
Total cost
i=ideal location w/out truck
Distance
$
Firm locates at city center
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Suburban manufacturing with truck
Freight cost
labor cost
Total cost
j=ideal location with truck
Distance
$
Firm locates at city center
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Manufacturing bid rent and beltways
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Additional factors pulling manufacturing towards suburbs
• Single story plants using assembly line production; require more land than traditional multi story plants
• Airports: require a lot of land and tend to be on fringes; many firms transport by air freight
• Cars: with demise of hub and spoke streetcar system, firms now locate where they are most reachable by car: highway exits.
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Offices drawn to suburbs by
• -Decoupling of operations: increase in splitting offices into front and back offices
• Better communication and connectivity: email, phones, Internet, teleconferences
• Many businesses now are less reliant on face to face meetings
• However, there will always be advantage to downtown clustering for certain types of firms that require face to face contact