I like these analogies. The one thing I think might not be accounted for is you could end up in a scenario where "price of raw land on the fringes should be tied reasonably closely to its value in alternative uses, such as agriculture" - but not because the price is anchored by the next best use of agriculture.
I think this premise is probably still right, but the principle of opportunity cost to justify it (as you point out) is flawed. Your continuum of alternative uses alludes to this. In reality, we could draw multiple curves series for different land use values starting from an urban centre on the left axis (zero on x-axis) and moving towards the agricultural fringe on the right.
The "highest and best use" for any particular parcel along the x-axis is determined by the land use curve that has the highest land value (y-value) at that particular point.
Because of this, we would eventually expect that as we move further to the right of the x-axis of the continuum, that the agricultural value curve would become the highest y-value and thus the highest and best use. We would expect there to be intercepts between various curves and uses so land value follows a continuum without any breaks.
Thus in principle without zoning regulations we should see a fairly continuous curve and gradually declining highest and best use, which progressively has agriculture as the dominant use. And so the prices/value at the margins should be reasonably close, not because of opportunity cost, but because declining urban use value eventually becomes superseded by agricultural value.
Normally when I see this depicted, agricultural use is usually represented as y = constant (horizontal line), an oversimplification. And urban use is usually represented as a 1/x type function that approaches zero. With agricultural use eventually superseding it as highest and best use.
The question then becomes if the existing jump in land values across (binding) urban growth boundaries are caused by regulation, then how does removal of those restrictions achieve an equilibrium by altering all land use curves?
On the one hand removing the binds on agricultural land would massively boost its value to restore the continuum. On the other, perhaps opening up so many options for residential development would somewhat devalue existing residential use values if rent is determined at the margin as according to Richardo's Law - on this point I cannot be sure yet. It does seem that even with 40 years worth of greenfield land supply available in some instances, residential land prices don't really seem impacted.
The new equilibrium land price is achieved by the previously regulated land having a new higher value use, hence a new opportunity cost (the opportunity cost of farming today is doing a residential subdivision today). Note that the price adjusts instantly, but that doesn't mean that the optimal time to strike the option of changing land use making the investment is today.
Yeah I agree with that part. What I can't be sure of is if we scrapped all urban growth boundaries and created additional competing equivalent locations via PT (travel time savings) that it would have zero impacts on residential land values. If Richardo's Law is that (residential) land rent is determined at the margin, if changes in land use zoning alter that margin then there should be impacts on residential land rents and thus values.
So can the margin for residential land be changed via land use regulation and transport policy? Supposedly if there are a lot more potential residential sites available at the margin, then the increased availability might reduce rents (more available residential land relative to demand) and thus the reduction of land rents at the margin would flow through to the rest of the market. But as I said before that runs into the issues where we see large greenfield supply not having price impacts.
I recall Chris Parker thinks it's not possible for all rural land to rise to restore the equilibrium without any flow on impact on to existing residential values because:
"Otherwise there is simply no market that can sustain the scale of such high land prices and such large implied urban expansion. That is, it’s not possible to extend the land price gradient from the city centre vastly beyond existing urban limits because the land area increases exponentially."
From what I can tell he thinks it would push the urban boundary of the city to absurdly large levels (well yeah of course, that's why we created growth boundaries in the first place). And probably some other issues about land rent differentials being absurdly large, but I can't really make sense of that. Maybe it's the implied rezoning windfalls from such a decision would be unfathomable.
I like these analogies. The one thing I think might not be accounted for is you could end up in a scenario where "price of raw land on the fringes should be tied reasonably closely to its value in alternative uses, such as agriculture" - but not because the price is anchored by the next best use of agriculture.
I think this premise is probably still right, but the principle of opportunity cost to justify it (as you point out) is flawed. Your continuum of alternative uses alludes to this. In reality, we could draw multiple curves series for different land use values starting from an urban centre on the left axis (zero on x-axis) and moving towards the agricultural fringe on the right.
The "highest and best use" for any particular parcel along the x-axis is determined by the land use curve that has the highest land value (y-value) at that particular point.
Because of this, we would eventually expect that as we move further to the right of the x-axis of the continuum, that the agricultural value curve would become the highest y-value and thus the highest and best use. We would expect there to be intercepts between various curves and uses so land value follows a continuum without any breaks.
Thus in principle without zoning regulations we should see a fairly continuous curve and gradually declining highest and best use, which progressively has agriculture as the dominant use. And so the prices/value at the margins should be reasonably close, not because of opportunity cost, but because declining urban use value eventually becomes superseded by agricultural value.
Normally when I see this depicted, agricultural use is usually represented as y = constant (horizontal line), an oversimplification. And urban use is usually represented as a 1/x type function that approaches zero. With agricultural use eventually superseding it as highest and best use.
The question then becomes if the existing jump in land values across (binding) urban growth boundaries are caused by regulation, then how does removal of those restrictions achieve an equilibrium by altering all land use curves?
On the one hand removing the binds on agricultural land would massively boost its value to restore the continuum. On the other, perhaps opening up so many options for residential development would somewhat devalue existing residential use values if rent is determined at the margin as according to Richardo's Law - on this point I cannot be sure yet. It does seem that even with 40 years worth of greenfield land supply available in some instances, residential land prices don't really seem impacted.
The new equilibrium land price is achieved by the previously regulated land having a new higher value use, hence a new opportunity cost (the opportunity cost of farming today is doing a residential subdivision today). Note that the price adjusts instantly, but that doesn't mean that the optimal time to strike the option of changing land use making the investment is today.
Yeah I agree with that part. What I can't be sure of is if we scrapped all urban growth boundaries and created additional competing equivalent locations via PT (travel time savings) that it would have zero impacts on residential land values. If Richardo's Law is that (residential) land rent is determined at the margin, if changes in land use zoning alter that margin then there should be impacts on residential land rents and thus values.
So can the margin for residential land be changed via land use regulation and transport policy? Supposedly if there are a lot more potential residential sites available at the margin, then the increased availability might reduce rents (more available residential land relative to demand) and thus the reduction of land rents at the margin would flow through to the rest of the market. But as I said before that runs into the issues where we see large greenfield supply not having price impacts.
I recall Chris Parker thinks it's not possible for all rural land to rise to restore the equilibrium without any flow on impact on to existing residential values because:
"Otherwise there is simply no market that can sustain the scale of such high land prices and such large implied urban expansion. That is, it’s not possible to extend the land price gradient from the city centre vastly beyond existing urban limits because the land area increases exponentially."
From what I can tell he thinks it would push the urban boundary of the city to absurdly large levels (well yeah of course, that's why we created growth boundaries in the first place). And probably some other issues about land rent differentials being absurdly large, but I can't really make sense of that. Maybe it's the implied rezoning windfalls from such a decision would be unfathomable.