Determinants of industrial

land prices

Huub Ploegmakers
Erwin van der Krabben

ERES Conference, 15-18 June 2011, Eindhoven

Location which the land-use plan
deems suitable for activities in the
branches of commerce,
manufacturing, commercial services
and industry
Theories of Land Prices
Alonso-Muth model

Little attention to the influence of developer behavior in

the determination of land prices

While market outcomes such as prices are always central to the

discussion, there is generally comparative neglect of the detailed
rules and mechanisms through which prices are formed
(Hodgson, 2008, p. 252)
A Partial Theory of Land
Prices
Restricted in explanatory properties

This article presents an attempt to explain

land prices in the particular case of the
Netherlands () where land is supplied
publicly (Needham, 1992: p. 670)
Average maximum price per
square meter in 2008
25,00
3,00 72,00
70,00
72,00
70,00 117,00
108,00
117,00
108,00 165,00
160,00
165,00
160,00 222,00
215,00
222,00
215,00 325,00
300,00
325,00
300,00 565,00
407,00
Economic principles
Maximum prices:
The price at which other municipalities in the
region sell building plots;
The residual value of the land

Minimum prices:
Total development costs
Political Decisions
Building plots on tap;

Chosen mix of land uses;

Quality of land servicing;
The amount of land supplied
Quantitative modelling
In Old Institutional economics:
The analysis does not start by building mathematical
models: it starts from theoretical conjectures
concerning causal mechanisms.
Mathematical and statistical techniques servants of,
rather than the essence of, economic theory.
Model Specification

Land Price
=( + average regional land prices,
regional competition,
land use type,
Source: Jasper Beekmans
Model Specification

Land Price
=( average regional land prices,
+
regional competition,
land use type,
+ accessibility,
+ urban agglomeration)
Variable Proxy Source

Maximum land prices Log of maximum listed land prices IBIS

Average regional land Average of log of maximum listed land IBIS

prices prices
Land supply on industrial estate as a
percentage of the total regional land
supply
Regional competition IBIS
Land supply in municipality as a
percentage of the total regional land
supply
Dummy variable: Heavy industry site,
Land use type Business Park, Transport site or Mixed IBIS
use site
Dummy variable: accessible by Motorway, IBIS
Accessibility Trunk road, or otherwise
Dummy variable: urban agglomeration,
Urban agglomeration surroundings of agglomeration, or CBS
otherwise
 OLS results
Constant 0,207*** (5,635)
Average Regional Land Price 0,891*** (104,052)
Share of competition (estate) 0,007*** (10,125)

Share of competition (municipality) 0,002*** (7,248)

Land Use Type

Heavy Industry Site -0,348*** (-15,539)

Business Park 0,247*** (12,680)

Transport -0,017 (-0,457)

Accessibility
Motorway 0,213*** (15,164)

Trunk Road 0,119*** (9,449)

Urban agglomeration 0,250*** (17,613)
Surroundings of urban agglomeration 0,143*** (9,935)

Adjusted R 0,690
Number of observations 6907
Conclusions
Land prices explained by regional average
land prices, site and locational characteristics

Model improvement:
- Measurement of regional average prices
- Measurement of accessibility
- Appropriateness of OLS?