A Theory of Land Prices when Land is Supplied Publicly: The Case of the Netherlands

Abstract

Most attempts to explain land prices assume free competition between suppliers and demanders of land. If there are constraints on this competition (e.g. land-use planning) this is added as a modification to the theory. When, however, the supply of building land is in the hands of public agencies, which determine the volume and price of supply specified by land use and location, a different theoretical approach is needed. In this situation, certain economic principles apply which determine the maximum and minimum prices at which land will be bought for development and at which serviced building land will be supplied for development. However, both the limits of this range and the actual land prices within it will depend on political choices made by the public agencies. In the Netherlands, municipalities dominate the supply of land for development and redevelopment. Information about the way Dutch municipalities make the political choices and about the actual land prices there, suggests they make the political choices in a consistent way: they see themselves as suppliers of a public utility, namely building land. They try to supply so that there is never any scarcity, so that quality is high, so that prices no more than cover costs. The resulting prices might not be low, but they represent good value for money, because no-one reaps development gains directly. These are low because disposal prices are lower than could be realised, or development gains are absorbed in providing either a better quality of land servicing or more land for social uses.