Download Urban and Regional Economics

Urban and Regional Economics
Comparative Advantage - the relative advantage in terms of economic efficiency that exists due
to infrastructure, natural resources, climate, labor pool, etc.
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Transportation - historically, major cities developed around ports on rivers and in harbors
(New York, San Francisco, New Orleans) and later on railroad lines (Chicago was a center
due to both railroad development and its location on Lake Michigan). Highways (Laredo)
and airports are important factors today.
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Educational facilities - the orientation of the economy toward technology and services has
resulted in locations close to major universities (Silicon Valley, Austin, Boston)
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Business environment - the availability (or lack) of utilities (water in San Antonio), tax levels
(PGA Village), housing (San Antonio vs. San Francisco), cultural activities (Austin),
transportation (Houston, Dallas for airports, San Antonio for lack of congestion) are factors
that can be influenced by public policy
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Natural resources - extractive industries gave rise to many urban areas (gold and silver,
later oil and gas in Denver, oil and gas for Midland/Odessa). Depletion of the natural
resources will result in withering if alternative advantages are not developed
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Climate - Sunbelt cities, ski resorts
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Labor force - educational level (Austin), wage levels (San Antonio)
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Local leadership
Economic Base - most cities are specialized in the economic activities that comprise the basis
of their trade with other areas (as are individuals). These export (or basic) activities include
manufacturing, agriculture, tourism, wholesaling and increasingly services due to
telecommunications advances (call centers, financial analysis). The population serving (nonbasic or support) activities provide the services to employment generated by the export activities
(construction, retailing, government, local banking, local services). Growth requires expansion
of the export activities in order to expand the sustainable level of non-basic activities (the export
base multiplier or "ripple effect").
Analyzing Local Real Estate Demand – first task is to conduct a market research study, or
analysis of the economic activity in the region, city and submarket
 Short-run Demand Issues
 Current supply of categories of space
 Industrial structure of the community
 Recent changes in the local economy
 Expectations of changes in the near future (Toyota)
 Long-run Demand Issues
 Long-term prospects for the economy of the community (La Cantera, PGA Village)
 National and regional trends expected to affect the local economy
 Expectations of new firms in the area
Highest and Best Use – the most important concept relating to the value of a piece of land is
how it is utilized. The use of the land that generates the highest return (or price to the owner) is
its highest and best use. While land is the basic building block to value (its location premium), it
is a residual in value. The order of return is
1. Investors in the business activity
2. Investors in the physical improvements on the site
3. Owners of the land
Thus, projects are only feasible if and when the combined cost of the land and other physical
and subjective attributes can command rents which are sufficient to achieve a market rate of
return on the capital invested.
Land Rents are generally highest for commercial uses, followed by residential, then agricultural.
See Figure 9.1 for bid-rent curves. Distance is a major factor, but there is overlap (Manhatten,
upscale downtown areas). A function of a city’s growth patterns, location, zoning and perceived
value to end users. The land value is an allocation of resources between location and proximity
to employees, customers, vendors, distribution points, etc. If location is less important, more
money can be spent of transportation and uses will move out from the core of a city, land use
will be less dense (and less expensive). If zoning restricts the use of land (setbacks, floor area
ratios, height restrictions) users have to acquire more of it to build and they will be willing to pay
less.
Models of Urban Growth
 Concentric-circle Growth – cities grow outward in circles from the central business
district (CBD) through “urban sprawl” and “edge cities”. Outer circles tend to be higher
income housing. Inner areas than migrate outward.
 Axial Growth – cities grow along transportation routes or geographical features
 Sector Growth – cities grow through sectors in which similar uses aggregate
 Multiple Nuclei Growth – similar to sector growth, but with multiple clusters of similar
sectors rather than a wedge-shaped growth (Houston)
Drivers of Growth
 Economies of scale, in which synergies through common physical or natural
infrastructure exist, tend to centralize urban areas
 Quality of life issues (pollution, crime, educational system, cost of transportation) tend to
decentralize urban growth
Public Facilities in Growth (infrastructure)
 Transportation – Freeways, railways (Toyota), and air transportation are all key drivers
to attracting businesses and labor. Beltways and loops, are common to help reduce the
axial growth of cities and encourage more concentric growth to make different areas
more accessible to one another
 Utilities – water and sewer facilities are essential. Sewer systems are vital to highdensity development when the land cannot handle the output of septic systems. Many
developments create their own sewage systems (Municipal Utility Districts, or MUDs)
Urban Form – important to understand in order to make an assessment of how to anticipate
future growth
 Commercial Growth – driven primarily by transportation considerations
 Industrial Growth – also driven primarily by transportation infrastructure as well as
utilities availability
 Residential Growth – public facilities (utilities, parks) is the driving force
Neighborhoods – an area in which types of property are similar, often geographically distinct
Neighborhood Change (life cycle)
 Gestation, youth and maturity – in the early stages, property values and residents’
incomes rise. Turnover is relatively low and residents are economically and socially
similar
 Incipient decline – departing residents are replaced by lower income residents.
Housing prices decline. Due to deterioration of structures, changes in local
environment or socioeconomic changes of residents.
 Clear decline – rates of return on investment decrease causing prices to decrease in
order to yield a higher rate of return. Repairs are minimal and properties deteriorate.
 Accelerating decline and abandonment – residents move out if able to do so.
Repairs are not made and buildings are abandoned. Revitalization is often
encouraged to renew the life cycle.
 Neighborhood Stabilization and Rehabilitation – if areas are maintained, mature
neighborhoods can remain stable with increasing value, often related to proximity to
central business districts. Gentrification is the process in which older, debilitated
areas are rebuilt into higher income areas (parts of downtown along the riverwalk)