In a market economy, most of the urban land can be freely sold or
purchased. Thus land economics are concerned about how the price
of urban land is established and how this price will influence the
nature, pattern and distribution of land uses. The above figure provides
some basic relationships between the quantity of land and its price
and assumes that there is a free land market. This market mechanism
follows the standard relationship between supply and demand, where an
equilibrium price is reached. A quantity of land Q1 would be available
at a price of P1. However, what is particular to cities is that the
supply is fixed since there is a limited amount of available land.
Not every type of activities is willing to pay a price
P1. Some may even need a price lower than P3. High land values impose
a more intensive usage of space so a higher number of activities
can benefit from a central location. The logic behind the construction
of skyscrapers is therefore obvious and takes place at optimal locations
of competition for land. Different type of activities, each having their
own land use, are willing to pay different rents.
- When land is reasonably available (Q1), the price (P1) will
- Moving towards the downtown the demand rises, land becomes scarcer
(Q2) and its price goes up (P2).
- Moving towards the periphery, more land is available, demand
drops (Q3), and so does the price (P3).