LAND
As a factor of production, land refers not only to a physical space,
but also to the resources that are associated with that space. Characteristics
of the land itself, as well as its proximity to marketplaces or transportation
routes affect rents (payments for the use of land); therefore, land is
an important part of the production process.
The market determines the value placed on land. Since little can be done
to change the supply of land, land values are based on demand. Because
all land is not equal, values will often vary significantly from one area
to another. Efforts to intervene in land markets must focus on redistributing
existing demand. This means making land more attractive as a location
for living or doing business.
It is often cheaper in financial terms to develop green fields (undeveloped sites) than to redevelop abandoned sites. The considerable expense involved in assembling and preparing abandoned sites has implications for spatial equity and resource conservation, since many are located in distressed urban areas. For this reason, policy intervention (providing resources to assemble and remedy land) is justified in terms of equity goals. Intervention may also be justified in terms of economic efficiency by arguing that capital market failure can occur when the negative effects of the surrounding neighborhood divert investment from a particular business site location.
Economic development is often thought of as real estate development because
of the vast amount of resources local governments devote to developing
residential, commercial and industrial sites. The following section describes
strategies to affect land values through housing markets, business site
locations and physical amenities.