The Relationship between Amenities and Urban Land Prices

It has long been recognized that land prices reflect the location-specific characteristics of the site as well as any unique structural characteristics of the land itself. In fact, the price of urban residential land depends primarily on its locational features or amenities. This relationship has been exploited through regression analysis to learn more about the values people place on the advantages or disadvantages of a site's location.1 Although many recent studies have utilized hedonic analysis of dwelling values for this purpose, there have been, and continue to be, analyses of the site value alone since it is the most direct embodiment of the value of locational considerations. In addition, there is considerable interest in predicting land values for purposes of real estate analysis and tax assessment.2 This paper proposes three specific extensions of the methodology commonly used to relate urban land prices to locational amenities. First, we find that most amenity variables should be expressed on a per unit of land basis. Second, the marginal value of an amenity may, in general, be a function of the level of that amenity, the levels of the other amenities, of land consumption, and of residents' incomes and preferences. Third, the intercept of the land priceamenity regression should also be a function of income and preferences. All of these propositions are derived from the view that the coefficients on the amenity terms are estimators of the slopes of individuals' bid-price curves. All of these propositions find empirical support as enhancing the ability of amenity levels to explain land prices.