Explaining Land-Use Transition in a Segmented Land Market

Abstract

Spatial planning policies can create segmented sub-markets for land, leading to an artificial scarcity for certain types of land use (usually urban land use) and higher land prices in that submarket, which can eventually spillover to other sub-markets. In a spatial context, these spillover effects are mainly observed in the urban fringes, where rural land owners often ask a higher price for their rural land because of expectations that this will be converted into urban land. The price for rural parcels in the urban fringe is thus related to the probability that these parcels will be put to urban uses in the (near) future, which is referred to as the ‘transition probability’. Figure 9.1 describes this relation in more detail. Land prices decline as the distance from the city centre increases. In situations where there are no spatial planning constraints (Fig. 9.1a), there is no gap between land prices at the urban fringe. If there is a spatial planning policy being implemented that restricts building on the fringe of a city (Fig. 9.1b), a sudden change in land prices can be observed for rural parcels immediately bordering the city. When it is expected that these limitations along the fringe may be lifted, the market price for those rural parcels will be somewhere between the urban and the agricultural land price. If the market price is closer to the agricultural land price, there is a low transition probability, and if the market price is closer to the urban land price, there is a high transition probability.