Start Date

23-11-1988 4:30 PM

End Date

23-11-1988 6:30 PM

Description

This paper discusses the development of an econometric model that provides valuable insights into four aspects of valuing vacant industrial land and then extending the model to apply to other vacant land categories. The four areas in which the model is expected to provide insights are: 1. The property tax neutrality of vacant industrial land prices. 2. The connection between general price inflation and land values. 3. The market segmentation across parcels of different sizes. 4. The relationship between unit land values and land parcel sizes. The most frequently used research methodology when estimating land values is the hedonic price model, which relates the price of property to its physical, legal, and environmental characteristics. This paper finds shortcomings with this limited approach and has extended its model to embrace the influence of the macro-economy on land values and attempts to capture this influence by the inclusion of financial variables into the hedonic model. Data is drawn from the downtown Montreal, Canada, core area and its immediately environs. For the period 1971-1987, sales price, land size, land shape, as well as information on financing and availability of services were recorded for 606 plots of industrial and commercial land. The model developed provided little explanatory power of inflationary expectations for land returns. Also, it was unable to delineate the role of expected future activity on land prices. The authors conclude that results derived from an econometric model involving the macro-economic environment as well as hedonic variables have interesting implications for assessors of vacant industrial land. Within a given location where the influence of services, distances from the central business district, and location arc most neutralized, land size and land shape have important price effects. They account for nearly 25% of the variation in land price for the 1971-87 time period. However, price elasticities of size and shape are not time-invariant and appear to follow an increasing step-function. This means that only the immediate past may be useful in predicting future elasticities. Inflationary expectations play a crucial role in explaining industrial land prices. In addition, the land market is apparently separated across size so that assessors must be sensitive to this possibility. Indeed, there are differential effects of expected future inflation on land values with the greater impact on the small sub-market. This would imply that small land sizes are more sensitive to changes in future inflation. The model's results indicate that, given the high variability of land returns, econometric modeling which attempts to connect land values to economy-wide factors will be beset with very serious estimation problems. Apart from conventional data problems, the authors believe that this is the most serious problem in any model building for land valuation.

Publication Date

November 1988

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Nov 23rd, 4:30 PM Nov 23rd, 6:30 PM

An econometric model of industrial land valuation

This paper discusses the development of an econometric model that provides valuable insights into four aspects of valuing vacant industrial land and then extending the model to apply to other vacant land categories. The four areas in which the model is expected to provide insights are: 1. The property tax neutrality of vacant industrial land prices. 2. The connection between general price inflation and land values. 3. The market segmentation across parcels of different sizes. 4. The relationship between unit land values and land parcel sizes. The most frequently used research methodology when estimating land values is the hedonic price model, which relates the price of property to its physical, legal, and environmental characteristics. This paper finds shortcomings with this limited approach and has extended its model to embrace the influence of the macro-economy on land values and attempts to capture this influence by the inclusion of financial variables into the hedonic model. Data is drawn from the downtown Montreal, Canada, core area and its immediately environs. For the period 1971-1987, sales price, land size, land shape, as well as information on financing and availability of services were recorded for 606 plots of industrial and commercial land. The model developed provided little explanatory power of inflationary expectations for land returns. Also, it was unable to delineate the role of expected future activity on land prices. The authors conclude that results derived from an econometric model involving the macro-economic environment as well as hedonic variables have interesting implications for assessors of vacant industrial land. Within a given location where the influence of services, distances from the central business district, and location arc most neutralized, land size and land shape have important price effects. They account for nearly 25% of the variation in land price for the 1971-87 time period. However, price elasticities of size and shape are not time-invariant and appear to follow an increasing step-function. This means that only the immediate past may be useful in predicting future elasticities. Inflationary expectations play a crucial role in explaining industrial land prices. In addition, the land market is apparently separated across size so that assessors must be sensitive to this possibility. Indeed, there are differential effects of expected future inflation on land values with the greater impact on the small sub-market. This would imply that small land sizes are more sensitive to changes in future inflation. The model's results indicate that, given the high variability of land returns, econometric modeling which attempts to connect land values to economy-wide factors will be beset with very serious estimation problems. Apart from conventional data problems, the authors believe that this is the most serious problem in any model building for land valuation.