Housing and Commuting: The Theory of Urban Residential Structure

A Textbook in Urban Economics

John Yinger

• Publisher: WSPC
• Year: 2017
• ISBN:
  9789813206687
• Topic: Business
• Subtopic: Business General
• Index: Business

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The field of urban economics is built on an analysis of housing prices, land rents, housing consumption, spatial form, and other aspects of urban residential structure. Drawing on the journal publications and teaching notes of Professor John Yinger of Syracuse University, Housing and Commuting: The Theory of Urban Residential Structure presents a simple model of urban residential structure and shows how the model's results change when key assumptions are made more realistic. This book provides a wide-ranging introduction to research on urban residential structure. Topics covered range from theoretical analysis of urban structure with different transportation systems or multiple worksites to empirical work on the impact of local public services on house values and the impact of racial prejudice and discrimination on housing choices. Graduate students and scholars who want to learn about research in urban economics will find this book to be a good starting point.

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--> Contents:

• The Basic Urban Model:
  • Introduction to Urban Models (John Yinger)
  • The Basic Urban Model (John Yinger)
  • The Demand for Housing (John Yinger)
• The Urban Transportation System:
  • Around the Block: Urban Models with a Street Grid (John Yinger)
  • Bumper to Bumper: A New Approach to Congestion in an Urban Model (John Yinger)
  • Timing Equilibria in an Urban Model with Congestion (Stephen L Ross and John Yinger)
• Sorting and Urban Labor Markets:
  • Normal Sorting (John Yinger)
  • Household Sorting and the Derivation of Bid-Function Envelopes (John Yinger)
  • An Equilibrium Model of Urban Population and the Distribution of Income (John Yinger and Sheldon Danziger)
  • City and Suburb: Urban Models with More than One Employment Center (John Yinger)
  • Comparative Static Analysis of Open Urban Models with a Full Labor Market and Suburban Employment (Stephen L Ross and John Yinger)
  • An Analysis of the Efficiency of Urban Residential Structure, with an Application to Racial Integration (John Yinger)
• Urban Public Finance, Capitalization and Hedonics:
  • Bidding and Sorting (John Yinger)
  • Property Tax Capitalization (John Yinger)
  • Capitalization and the Theory of Local Public Finance (John Yinger)
  • Capitalization and Sorting: A Revision (John Yinger)
  • The Capitalization of School Quality into House Values: A Review (Phuong Nguyen-Hoang and John Yinger)
  • Hedonic Markets and Sorting Equilibria: Bid-Function Envelopes for Public Services and Neighborhood Amenities (John Yinger)
  • Hedonic Equilibria in Housing Markets: The Case of One-to-One Matching (John Yinger)
  • Hedonic Vices: Fixing Inferences about Willingness to Pay in Recent House-Value Studies (John Yinger and Phuong Nguyen-Hoang)
• Racial and Ethnic Prejudice and Discrimination:
  • Racial Prejudice and Racial Residential Segregation in an Urban Model (John Yinger)
  • On Models of Racial Prejudice and Urban Residential Structure (Paul N Courant and John Yinger)
  • Cash in Your Face: The Cost of Racial and Ethnic Discrimination in Housing (John Yinger)
  • Hedonic Estimates of Neighborhood Ethnic Preferences (John Yinger)
  • Measuring Racial Discrimination with Fair Housing Audits: Caught in the Act (John Yinger)
  • Now You See It, Now You Don't: Why Do Real Estate Agents Withhold Available Houses from Black Customers? (Jan Ondrich, Stephen L Ross and John Yinger)
  • Do Rental Agents Discriminate Against Minority Customers? Evidence from the 2000 Housing Discrimination Study (Seok Joon Choi, Jan Ondrich and John Yinger)
  • Why Do Real Estate Brokers Continue to Discriminate? Evidence from the 2000 Housing Discrimination Study (Bo Zhao, Jan Ondrich and John Yinger)
  • Evidence on Discrimination in Consumer Markets (John Yinger)
  • What Have We Learned from Paired Testing in Housing Markets? (Sun Jung Oh and John Yinger)

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--> Readership: Students and professionals in urban planning and urban economics. -->
Keywords:Urban Economics;Urban Residential Structure;Commuting;Capitalization;Residential Sorting;Housing DiscriminationReview: Key Features:

• This book brings together the research on urban residential structure by Professor John Yinger
• This book provides the only comprehensive introduction to urban economics at the graduate level, covering a much wider range of topics in more depth than any alternative
• No other book provides graduate-level analysis of basic urban models; extensions of these theoretical models to complex urban transportation systems, heterogeneous households, multiple worksites, local governments, and racial discrimination; and applications of the insights from these models to empirical work on housing demand, the impact of property taxes and local public services on housing values, and the causes and consequences of housing discrimination

PART I

THE BASIC URBAN MODEL

CHAPTER 1

INTRODUCTION TO URBAN MODELS

1.1. Introduction

Analysis of urban problems and urban policy requires an understanding of urban housing markets. In fact, because urban problems virtually all have a spatial dimension and because housing markets determine the distribution of different types of people across urban space, housing market analysis forms a foundation for thinking about most urban policies. The key concepts and analytical tools can be found in many urban economics textbooks (such as O’Sullivan, 2011), but the presentation in these books is often more technical than necessary and does not always draw out several features of urban housing markets that are crucial for understanding the economics of urban areas. This chapter is designed to provide the basic concepts and simple analytical tools that make it possible to understand urban housing markets and to bring the spatial dimension into an evaluation of any urban policy.¹

This chapter is organized in three sections. Section 1.2 presents basic concepts of land and housing markets and develops the principal analytical tool for housing market analysis, which is called a bid function. Section 1.3 develops the concept of household sorting, which is the market process that allocates different types of households to different locations in an urban area. This concept has many important applications in urban policy; for example, it helps to explain concentrated poverty. This section also introduces the concept of neighborhood amenities, which are crucial both for household sorting and for neighborhood change. Section 1.4 shows how bid functions and household sorting concepts can be used to help understand both neighborhood change and long-run equilibrium in an urban area.

1.2. Land Concepts, Housing Concepts, and Household Bid Functions

Any discussion of housing must begin with land, which is a key input into housing and in fact is the input that gives housing a spatial dimension. Moreover, land concepts provide a simple entry into housing market concepts. This section of the chapter presents land concepts, then turns to housing concepts, and finally to bid functions.

1.2.1. The Land Market

The first concepts are land rent and land value, which are defined as follows: Land rent is the price for using one unit of land, say an acre, for one unit of time, say a year. Land value is the price of buying one unit of land, again say an acre.

The first analytical question to ask about land is: How are these two concepts related? The answer to this question flows from another question: How much would an investor be willing to pay to purchase one acre of land? The answer is that she would be willing to pay the present value of the stream of rents (net of expenses) that the owner of the land would receive.² In other words, land value equals the discounted value of the stream of annual net land rents. This type of relationship holds for the price of any asset; that is, the price of any asset, including land, equals the present value of the stream of annual (or monthly or weekly or daily) benefits from owning it.

In symbols, let R_Lt stand for land rent in year t, V_L for land value, and i for the discount rate. Then, assuming that payments are received at the end of each period, the relationship between V_L and R_L can be written as follows:

In the important special case that R_Lt is a constant over time, so that the time subscript can be dropped, this formula simplifies to³:

Remember that all discounting formulas must be consistent in the treatment of inflation. If R_L is constant in nominal terms (perhaps due to a long-term contract) then a nominal interest rate must be used for i. In the more likely case that R_L is constant in real terms, i must be a real interest rate; that is, it must equal an observed market interest rate minus the anticipated rate of inflation.

Because land is an input into the production of many things, including housing, a distinction often is made between two land value concepts: Unimproved land value is the value of land with nothing on it, or the value of the land itself, excluding the value of any structures that may be on it. Improved land value is the value of the land itself plus the value of the structure built on it.

Unimproved land value is a tricky concept both to think about and to measure. It is difficult to think about because the amount someone is willing to pay for land includes the net return (that is, the return after construction costs) from buildings that could be built on it. The relevant buildings here are the ones that yield the highest return on a particular piece of land. The point here is that land has no intrinsic value, it only has value as an input into the production of something.⁴

Improved land value is the same thing as property value. For example, the value of a single-family house, which is considered in detail later on, is an example of an improved land value.

One implication of these definitions is that the difference between the improved and unimproved value of a particular piece of land equals the cost of constructing the property that will yield the highest return. After all, it is the construction of this property that translates the hypothetical return in the unimproved land value concept into the actual return in the improved land value concept. In other words, the construction cost is what an investor saves if she buys land with improvements already on it.

This discussion focuses on unimproved land value. This value often is difficult to observe because most urban areas do not have a great deal of vacant land — let alone frequent sales of vacant land. In other words, most actual land sales involve land with improvements, so the unimproved land value must be inferred (by subtracting estimated construction costs or by some other method).

Land is an input that goes directly into producing housing, but it also appears in the production of almost everything else. Factories, stores, restaurants, and theatres, all must occupy land, so businesses must decide how much land to buy or rent, just as they must decide about capital and labor. Recall from basic micro-economics that the demand for an input is a derived demand, which equals the value of the input’s marginal product multiplied by the price of the output being produced. In other words, the amount a firm is willing to pay for another unit of the input equals the money it will earn when that input is purchased, which equals the quantity of product that additional unit will produce multiplied by the revenue that quantity of product will generate in the marketplace. The horizontal sum of the demand curves of individual firms equals the market demand for the product.

The market supply of an input typically depends on the behavior of the owners of that input. In the case of land, however, the supply is approximately fixed. For most applications, therefore, the overall supply curve for land can be treated as vertical. In some cases, the possibility of creating usable land from landfill may move the supply curve somewhat away from vertical. Moreover, the supply of land for a particular type of activity is not vertical in general because land can be moved from one use to another.

In competitive markets (on which our attention will focus), all actors are price takers. Hence no individual can affect the market price of an input. The price of land is found at the intersection of the (derived) demand curve and the (vertical) supply curve, and each user of land adjusts the quantity of land she rents (or buys) so that the value of her marginal product equals the market land rent (or value).

One important implication of this analysis is that the price of land is derived from the price of housing or of business property. In other words, the price of land is high in some places because people (or businesses) are willing to pay a lot of money to locate there. It is not correct to say that the price o...

Table of contents

• Cover page
• Title page
• Copyright
• About the Editor
• Contents
• Introduction
• Part I. The Basic Urban Model
• Part II. The Urban Transportation System
• Part III. Sorting and Urban Labor Markets
• Part IV. Urban Public Finance, Capitalization and Hedonics
• Part V. Racial and Ethnic Prejudice and Discrimination
• Index