The Spatial Structure of Urban Areas

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The Spatial Structure of Urban Areas

• From chapter 7 of Hoover and Giarrantani.

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spatial relations within the individual urban or
metropolitan area

• the essence of a city lies in the close proximity
  of diverse activities and persons
• Such an area includes
• a principal city with an intensively developed
  core or downtown area (the central business
  district, or CBD)
• and a surrounding fringe of suburbs and
  satellites linked to the principal city by trade,
  commutation, and other socioeconomic interaction

3
Land-use analysis implies a willingness to bid
high rents for the more central locations.

• There were three important factors which
  explained why this willingness existed.

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Access and Agglomerative factors

• Foot traffic and the importance of direct
  face-to-face contact in some activities.
• Where linkages take place at a central point and
  there are substantial transfer costs.
• agglomeration economies often requires close and
  frequent contact.

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Independent Locations

• For some activities, certain topographical or
  other natural site features are essential
• Ski lodges require mountains
• Ships must off load at harbors
• Mouth of mine electrical generation occurs at the
  mine.

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Independent Locations

• Some activity requires contact with the outside
  world
• Shipping
• Air transport
• Information transmission
• Assemble operations

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The Center or the Central Business District

• point of "maximum overall accessibility" within
  the urban area.
• the "median center of population"

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the "median center of population"

• would seem to depend simply upon the location of
  the various types of residence.
• But travel is cheaper and faster along developed
  routes
• cost and layout of these routes are affected by
  scale (traffic volume) and topography.
• So, in terms of travel cost and time, the focal
  maximum-access point remains fairly constant even
  in the face of changes in its access advantages
  over time.

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The Central Business District or Focal Point

• Is the beginning point to understanding overall
  location patterns

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Limitations

• there are really a variety of distinguishable
  central points of this sort, depending on what
  kinds of people or things we are imagining to be
  assembled with a minimum of total expense or
  effort.

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Limitations

• There are many populations and their patterns
  of location are not identical
• Laborers
• Shoppers
• Students
• Office workers
• Blue coller workers
• Theater goers
• Library users
• There might be different optimum location
  depending on which group an activity needs access
  to.

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Different Populations

• Same argument can be applied to different kinds
  of goods.
• Wholesale activity
• Production of perishable items like bread or news
• Retail convenience items

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Because of these limitations

• A single central focal point which is the focus
  of all origin and destination activity would be a
  fiction.
• Even for a single type of population there may be
  logical reasons not to locate all facilities
  needing access to that population at one point.
• One point with optimum access to homes of
  clerical workers may not be enough of a reason to
  locate all offices at that point.
• But such a place can lay claim to having the best
  access to such workers from a commuting cost
  basisif we ignore the opportunity cost of other
  uses of the land, and the fact that clerical
  workers may be part of more than one population,
  it might make sense for the focal point of such
  employment to be at that place.

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• One point with optimum access to homes of
  clerical workers may not be enough of a reason to
  locate all offices at that point.
• But such a place can lay claim to having the best
  access to such workers from a commuting cost
  basisif we ignore the opportunity cost of other
  uses of the land, and the fact that clerical
  workers may be part of more than one population,
  it might make sense for the focal point of such
  employment to be at that place.

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Neighborhood Externalities

• proximity can have unfavorable as well as
  favorable effects
• cleanliness, smells, noise, traffic congestion,
  public safety, variety interest, and general
  appearance
• High-income householders may be willing to
  lengthen their work journey greatly for the sake
  of neighborhood amenity or agreeable surroundings.

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effect of Neighborhood Externalities

• neighborhoods more homogeneous within themselves
  and more unlike other neighborhoods
• areal specialization by uses, or "segregation" by
  activity or characteristic
• Zoning controls and planned street layouts play
  a part in reinforcing this tendency.

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Limitations to the CBD concept, neigborhood
externalities, and independent location factors

• Stand in marked contrast to the broad continuous
  zones of economic activity suggested by von
  Thünens simplified model of patterns of land use

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When the Von Thunen model is applied to ag or
residential location

• not necessary to consider the size of the
  individual location unit in terms of output or
  occupied land area, since such zones contain a
  large number of adjacent units.
• Accordingly, in that instance, we look for
  explanations of rent-paying ability and location
  in terms of inputs, costs, outputs, and rents on
  a per-acre basis.
• We could appropriately consider costs as affected
  by intensity of land use rather than by the size
  of the producing unit, the firm, or the cluster.

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Consider the Housing market
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Housing Markets

• Housing represents about half of the land use in
  urban areas.
• It is a unique commodity which plays a large
  role in consumer expenditure and location
  patterns.
• It has also been subject to significant policy
  debate and policy action both by local and
  federal governments.

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We want to specifically examine

• 1. The ways in which housing is unique
• 2. how hedonic price analysis an be used to
  understand segmentation in the housing markets
• 3. the demand and supply characteristics of
  housing and, more specifically,
• 4. the filtering model of housing.

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Five characteristics which distinguish housing

• 1. Heterogeneity
• 2. immobility
• 3. durability
• 4. large expense relative to income
• 5. high adjustment costs.

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Heterogeneity

• Housing is both a form of consumption and a means
  of investment.
• Housing is to some extent a private good but also
  to some extent a public good (public in the sense
  that when you own a house you not only have the
  house, but you also become part of a local
  community and local government.)
• No two housing units are exactly the same.
• So, the price per unit is difficult to assess.

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What features are most important to people?

• Renting vs. Buying (Rossi Study)
• cost
• space
• location (transportation oriented)
• social composition of the neighborhood

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problem for the consumer

• some of the features differ in the degree of
  compatability.
• For example to have a lot of space and be close
  to where you work or close to transit systems may
  mean a very high cost or undesired social
  composition of the neighborhood.

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Immobility

• Housing is difficult to move once it is built.
  It is also difficult and expensive to alter the
  nature of it. Finally it is expensive to
  demolish. So generally, once it is there-its
  going to be there for a while.
• Because of this it tends to slow the change in
  the housing market.

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Durability

• Housing lasts a long time not only because it is
  expensive to demolish but also because the nature
  of housing is durable. We expect new housing to
  last a minimum of 30 years and good well
  constructed housing should last hundreds of
  years.
• Expectations about market conditions that will
  prevail in the future are therefore important to
  a person buying a house.
• concerned about your consumption of the houses
  services, but also about long term investment
  potential.

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High Expenses, relative to Income

• This is obvious

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Large Adjustment Costs.

• It is expensive to move, both financially and
  psychologically.
• Transaction and information costs are extensive
• Therefore households adjust there housing only
  with plenty of motivation

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Hedonic Price Analysis

• Because asking how much housing you are consuming
  is not the same as asking how many snickers you
  ate, we use an idea to compare housing units
  which is known as hedonic price analysis

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Hedonic Price Analysis

• The idea is that each characteristic of a house
  from square foot of bedrooms to type of roof has
  an implicit price.
• The value of the house is the sum of the implicit
  values.
• We would know the actual value of a house if it
  was sold in the market each year but they arent,
  what we can do is
• determine implicit prices of each characteristic
  of each house that is sold in the market and
  apply those values to the same characteristics of
  houses which did not sell.

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The functioning of the housing market

• The owner typically contacts a real estate broker
  who specializes in selling houses.
• A listing contract is drawn up between seller and
  broker, stipulating the price the seller is
  willing to accept, the fee the broker will
  receive when the house sells, and the time limit
  on the contract.

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The functioning of the housing market

• The broker is the SELLERs representative
• Price is determined by bargaining between buyer
  and seller
• Then comes financing.

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financing

• The typical buyer must arrange for a home loan
  from a financial insitution.
• This typically requires a down payment of 20 of
  the purchase price so a loan of 80 is standard.
  
• Some govt loan programs permit the buyer to make
  a down payment of less than 20.

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Foreclosure

• The basic contract for a home loan, a mortgage
  contract, stipulates that if the buyer fails to
  make the required payments on the loan, the
  financial institution can foreclose.
• Foreclosure means the financial institution has
  assumed ownership of the property and may sell it
  to recover the amount loaned.

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appraisal

• Before the loan is signed there will be an
  appraisal by a professional appraiser to
  determine the value of the property.

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CLOSING

• Evidence of legal title is transferred form
  seller to buyer.
• Buyer pays seller, buyer writes a check for his
  or her part of the price or other expenses.
• Buyer also sings mortgage contract and walks away
  with the selling price minus the final loan
  payment and any expenses including brokers
  commission.

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Statistical Models of House Values

• using a data base of past sales and the
  attributes, locations and selling prices of those
  properties is called a hedonic model .
• The idea is that a house consists of numerous
  components which add to ones pleasure, and that
  each of these components has a price.
• The market price of the house is the sum of the
  market prices of its components.

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very simple model

• components are the size of the house (interior
  square feet), the size of the lot (exterior
  square feet), and the proximity to employment.
• The market value of houses (V) can be specified
  as the linear equation
• Va0 a1F a2L a3x e

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Va0 a1F a2L a3x e

• F number of square feet of interior space
• L the number of square feet of exterior space
• x s the distance to employment,
• e is the random error term.
• a1 is the market value of an additional square
  foot of interior space,
• a2 is the market value of a square foot of
  exterior space, and
• a3 is the reduction in value associated with
  greater distance form employment.

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Estimation

• You simply plug in the variable values for any
  house you want to estimate the value of and let
  the coefficients give you the answer.
• NOTE while economists estimate values of houses
  like this APPRAISERS are not permitted to perform
  appraisals in this manner.
• most economists use a long-linear equation
  because it tends to fit the data better than a
  linear equation. Then the coefficients indicate
  the percentage change in V associated with a
  change in the independent variable.

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• The mean selling price of the houses was
  185,368. Note negative externality of locating
  near a church. Probably traffic and noise.

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price of a house

• reflects the attributes of the house and lot and
  the characteristics of the neighborhood in which
  the house is located.
• established through the process of negotiation
  between buyer and seller, but there is not sale
  unless the buyer makes a bid.

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Buyers base their bids on many factors

• not everyone places the same value on a given
  bundle of attributes and neighborhood
  characteristics
• highest bid occupies the property
• If there are systematic differences in the bids
  made by different types of households, there will
  be clustering of households of particular types.

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Source Do, Wilbur, and Short(Journal of Real
Estate and Urban econ. Vol 9, 1994 An empirical
examination of the externalities of neighborhood
churches on housing values as summarized in
McDonald, John F. Fundamentals of Urban
Economics, Prentice Hall, 1996.
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Variables having statistically significant impact
on selling price
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Housing and Racial prejudice

• King and Mieszkowski (1973) first pointed out
  that it is important to separate the effects of
  demand and supply factors on racial price
  differences

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prejudice

• If prejudice on the part of white households is
  the only racial factor operation, the aversion of
  whites for blacks will lead to supply adjustment
  which brings about lower housing prices for
  blacks than for whites who avoid blacks.
• However if housing suppliers discriminate against
  blacks by limiting access as black demand grows,
  for example, we may find blacks pay more than
  whites for equivalent housing while white demand
  for housing is reduced by racial prejudice.

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King and Mieszkowski

• studied New haven during 1968-69 and examined
  rents paid by white and black households in 2
  types of areas, the black interior and the racial
  boundary, compared to rents paid by whites in the
  white interior.

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Results

• White rents in the boundary areas were 7 percent
  lower than rents in the white interior.
• Rents paid by blacks in the boundary area were
  equal to white interior rents so there was a 7
  difference between white and black rents in the
  boundary area.
• This is their estimate of the effect of racial
  prejudice.
• Both white and black rents in the black interior
  were about 9 higher than white interior rents
  suggesting limitation s on the expansion of the
  balck residential areas during a period a demand
  growth.

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More results-Berry (76)

• According to Berry, the situation had changed
  considerably by the end of the 60's
• Berry (76) pointed out that housing grew more
  than demand in Chicago and as a result housing
  was transferred from white to black and black
  houses destroyed.
• Berry argued that this resulted in lower prices
  for blacks and latinos than whites in their
  traditional neighborhoods.
• So in effect white prejudice was operating and
  there were not barriers to a rapid increase in
  the aggregate supply of housing available to
  blacks and latinos.

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• Smith (1981 strongly questioned this concluding
  that blacks and latinos in fact got inferior
  housing not lower prices. Berry failed to take
  into account crime rates levels of pollution etc.
  Smith even questioned the conclusion that after
  controlling properly for neighborhood
  characteristics prices are really lower in the
  black-white border areas.

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American Apartheid

• A more recent book by sociologists Douglas Massey
  and Nancy Denton (1993)
• Documented the degree of segregation in urban
  areas in America One measure of segregation is
  the percentage of blacks who would have to move
  to achieve an equial percentage of blacks in all
  census tracts.
• Average for 10 metro areas was 83.9 in 197 to
  83.9 in 1980 (all northern cities) showed
  declines in segregation in LA SF Washington DC
  Dallas-Forth worth, and Houston but no change in
  NY, Chicago, Phily, Boston, or Detroit.

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What causes racial segregation?

• What causes racial segregation? According to
  schwab
• 1. Segregation by social and economic status,
  caused by tastes for social linkages.
• 2. Segregation related to ethnic group which may
  in part stem from timing of arrival of immigrants
  to an urban area
• 3. Segregation caused by active discrimination
  against certain racial groups
• 4. Segregation caused by prejudice against
  certain groups. (Neighborhood tipping)

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The Filtering Model of the Housing Market.

• 1. Begin by ignoring location and neighborhood
  characteristics.
• 2. Assume all housing can be arrayed in a
  hierarchy from best to worst.
• 3. Assume that households are arrayed in order of
  the amount of housing they demand with higher
  incomes demanding more housing so the order of
  the household array is correlated with income.
• The housing market assigns each household to a
  housing unit and determines prices for the
  various units.
• 4. Assume the housing units are grouped according
  to quality into three groups top middle and
  bottom. The three markets are interrelated
  because they are to some degree substitutes.

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The filtering model

• The fact that most of the new units are in the
  suburbs and the old low quality units are in the
  city shows why there is a concentration of poor
  people in the city and shows why people move to
  the suburbs. Loss of tax base increased cost of
  tearing down abandoned building ,crime that comes
  with abandonment etc.
• One aspect of housing policy is the construction
  of housing units that fall within medium quality
  category. The impact on the market for low
  quality units include reduced housing rents and
  increased vacancies and ultimately removal of
  units from the stock and restoration of the rent
  levels.