Urban Real Estate Economics And Juxtaposes Them With Traditional Theories

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THEORETICAL BACKGROUND This paper discusses and analyses modern theories of urban real estate economics and juxtaposes them with traditional theories. In earlier times, city life used to revolve around a central business district (CBD) which was the nerve centre of all economic, social and cultural activity. As a result, real estate prices reflected the proximity of the site to the CBD and they dropped the further one went from it. The dichotomy is often expressed through architecture, with high-rise apartment buildings in the city and low-rise developments further out. Alonso, 1964; Mills, 1972 and Muth, 1969 mulled on this model of cities and viewed real estate economic data and ran studies through the lens of a monocentric urban…show more content…
It is based on the law of diminishing returns – that over time, produce from a certain land parcel will decline in quantity and quality, yielding lower and lower profits, while at the same time, pressure on the land in the form of population will always rise. As it is the amount paid by the lessee for the indestructible powers of the land, different parcels with different fertility capacities will command different rents. As the amount of land is finite, the cost of production will also keep rising. Applying this theory to urban real estate, a monocentric city would have finite space for development due to which costs of construction will rise, passing on the burden to the buyer. Von Thunen, on the other hand, concerned himself with location and transportation costs in addition to fertility as factors determining price. He attributed differential rents to distances between places with desirable qualities and the costs of transporting oneself between them. At its most basic, the theory stands for the hypothesis that without the need for proximity and the price (rent) charged for it, land would be an almost free good. For two residential locations to have near identical prices, not only must they be located close to each other, but they must also provide the same level of utility to residents. This is because the decisions of location
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