See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/283618969

Determinants of Land Use and Property Value

Article in Journal of Computational and Theoretical Nanoscience · May 2015

DOI: 10.1166/asl.2015.6065

CITATIONS READS

19 20,357

3 authors, including:

Emmanuel Gwamna Wan Yusoff Wan Zahari

Tun Hussein Onn University of Malaysia Tun Hussein Onn University of Malaysia
10 PUBLICATIONS 44 CITATIONS 63 PUBLICATIONS 504 CITATIONS

SEE PROFILE SEE PROFILE

All content following this page was uploaded by Wan Yusoff Wan Zahari on 18 February 2016.

The user has requested enhancement of the downloaded file.

RESEARCH ARTICLE Adv. Sci. Lett. 4, 400–407, 2015

Copyright © 2015 American Scientific Publishers Advanced Science Letters

All rights reserved Vol. 4, 400–407, 2015
Printed in the United States of America

Determinants of Land Use

and Property Value
Emmanuel S. Gwamna1, Wan Zahari Wan Yusoff 2, Mohd Firdaus Ismail3
1,2,3Department of Real Estate Management,

Faculty of Technology Management and Business,

Universiti Tun Hussein Onn, Malaysia (UTHM).

Urban land use and property values were once a weak link in economic theory. A lot of research has been done over the years
on land use and property value but the basis or foundation of models used for property value analysis has not been
illuminated. This has established the nexus between Alonso’s Bid Rent theory and the Monocentric City Model. A review of
previous research works on the subject area was done. The data was obtained through documentary secondary sources. The
findings from the review revealed that all the determinant factors of land use and property value revolve around the
traditional hedonic postulation of willingness to pay (WTP) for structural, locational and neighbourhood attributes of
property. These were based on Alonso’s Bid Rent theory and Rosen’s Hedonic Price Model reaffirming the link between
them. The importance of utility, interest and willingness to pay (WTP) for property attributes will be better appreciated by
real estate scholars and professionals.
Keywords: Land use, Property value, Bid rent theory, Monocentric city model.

1. INTRODUCTION *
Email Address: emshega@gmail.com
Land value stems from the fact that land is necessary
for construction, and buildings are necessary for most With the bulk of research work done in the area of land
kinds of production of goods or services and for some use and property value, the important aspect of defining
types of consumption, such as housing1. Land originates the basis or foundation of models used for land use and
its value from the fact that is an indispensable input, or a property value analysis has not been illuminated. This
factor of production. The real estate value of land thus study hopes to fill this gap by establishing the connection
comes from what is known as derived demand: people are or link between the Bid Rent theory4 propounded by
willing to pay for land not because of its inherent value, Alonso and the contributions to the Monocentric City
but for the fact that it is necessary to achieve other things Model5,6 by Muth and Mills.
that have consumption or production value. The study will undertake a review of previous
Like most economic transactions, economic forces of research work done in the aspect of land use and property
demand and supply, ceteris paribus, are expected to values. This will be done in the light of established
determine the value of urban land. Generally, the relative theories of land use and urban economics.
dearth of land allocated to various uses influences the The paper is structured as follows: the next section
value significantly2. will discuss the theoretical underpinnings of land use and
If urban land supply is very responsive to demand, property value; section three will explain the research
there is the tendency to reflect the productive value of methodology; review of previous research will be done in
land. However, if urban land markets cannot effectively
section four, discussions will be in section five, while
respond to demand pressure, land values will tend to be
section six will conclude the paper.
much higher3.

1 Adv. Sci. Lett. Vol. 4, No. 2, 2015 1936-6612/2011/4/400/008

doi:10.1166/asl.2011.1261
Adv. Sci. Lett. 4, 400–407, 2015 RESEARCH ARTICLE

2. THEORETICAL UNDERPINNINGS OF LAND

USE AND LAND VALUE
Basic
The 19th century scholarly works of David Ricardo Urban
and Johann Heinrich von Thünen both provided the Model

maiden theories on land use and land value. Though the

two theories are on opposing sides, most of the later
theories on land use and land value were based on them2.
While Ricardo’s economic theory focused on relative Alonso
productivity of agricultural land, the geographical theory
of von Thünen harped more on the locational qualities of Von Thünen’s Muth Monocentric Land Uses &
Theory City Model Property Values
land in terms of its use and value.
Alonso developed one of urban economics’ critical Mills

analytical tools7. In order to isolate factors attributable to

the household’s willingness to pay (WTP) for access to
the Central Business District (CBD) of an urban centre, Fig. 1: Flow chart showing the proponents of the basic urban model
Source: Adapted from Arnott & McMillen7
Alonso employed the concept of bid rent2.
In developing the bid rent function technique,
Alonso developed the earliest version of the traditional
Monocentric city model which extended von Thünen’s
model to an urban context. In Alonso’s version of the 3. METHODOLOGY
model, urban households receive utility from land, along
with other goods. Land does not vary in any way except This study conducted a review of previous research
that sites closer to the CBD offer households lower works regarding land use and property values. A total of
commuting costs. In an attempt to avoid costly commutes, 12 empirical research works were presented in a table and
households are willing to pay a premium for sites closer analysed descriptively.
to the CBD4. The bulk of the data used for this study was obtained
Extensions of the model were later produced by from secondary sources. The type of secondary data
Muth5 and Mills6. These extensions added housing to the adopted is the Documentary secondary data where
model. Households do not get utility directly from land; journals, articles, books and the World Wide Web (cyber
rather, they get utility from housing, and housing is internet) were consulted for information. This type of
produced by combining land and capital. Although Muth study is referred to as archival8.
and Mills worked independently, this version of the Archived databases from research studies conducted
previously have increasingly become a source of archival
Monocentric city model is often referred to as the “Muth-
data for researchers9.
Mills” model. In this version of the model, house prices,
land rents, building heights, and population density all 4. REVIEW OF PREVIOUS RESEARCH
decline with distance from the CBD5,6.
A review of previous research on the aspect of land
use and property value determinants is presented in this
section. The review on the past studies was done to show
property value determinants in different economies and
across various property types.
Twelve earlier empirical research works are
presented in Table 1 which has columns with author and
country of study, issues studied, the methodology adopted
for the study, findings of the study, and remarks on the
findings of the study.
The objective here is to highlight the various
determinants of land use and property values in different
scenarios and deduce whether they fall within the purview
of structural, locational and neighbourhood attributes of
property.

2
RESEARCH ARTICLE Adv. Sci. Lett. 4, 400–407, 2015

Table 1: Past studies on determinant factors of land

use and property values

AUTHOR/ ISSUES METHODOLOGY FINDINGS REMARKS/

COUNTRY COMMENTS
1. Liew & Factors influencing the rise Average indexing, T- Construction costs; population growth, Economic factors have the
Haron10, of house prices & their test and Pearson long term profit of housing, growth of most influence on house
Malaysia level of influence. correlation. GDP, & decline in supply of new prices in this study.
housing.
2. Dziauddin Effect of Light Rail Transit GIS, network analysis Properties close to the LRT station were Impact of LRT station on
et al.11, (LRT) systems on house & double log hedonic valued higher than properties situated property values in line with
Malaysia prices. model. further away. the bid rent function theory.
3. Ong12, Relationship between Multiple regression GDP, population & property gains tax are Population growth &
Malaysia macroeconomic variables & analysis. the key determinants of house prices. government policy are
the price of housing. important influencing
factors.
4. Larsen & Effects of surface street Hedonic regression Single-family homes contiguous to an Street traffic affects various
Blair13, traffic externalities on was used. arterial street were sold at a discount property types differently.
U.S.A. residential property price. while multi-unit properties contiguous to
an arterial street were sold at a premium.
5. Aliyu et Violent ethno-religious Percentage distribution Statistically significant relationship Conflict prone areas have
al.14, conflict on residential tables & regression between ethno-religious conflict & lower rental values due to
Nigeria property values. analysis. people’s decision of where to live. decrease in demand and
vice-versa.
6. Uju & Location & non-location Stepwise regression Non-location factors, particularly the Actual residential property
Iyanda15, factors in the determination analysis was used for time of land purchase, were the most values should have been
Nigeria of residential land values. data analysis. significant determinants of residential used for better illustration
land values than the distance variables. and comparative analysis.
7. Kemiki et Impact of factory noise & Hedonic pricing model Adverse externalities of dust & noise Dust & noise have negative
al.16, dust on rental values of was used. diminished rent. effect on residential rental
Nigeria residential settlements. values.
8. Adegoke17, Factors influencing rental Hedonic price model The most influential factors in all the Structural attribute and
Nigeria value of residential of stepwise regression areas were number of bathrooms, number security are the most
property. basis. of living rooms & availability of burglar important factors
alarm. influencing rental values.
9. Famuyiwa Inherent values of Semi-log (log-linear) Power supply, good road conditions, Infrastructure & utilities
& particular physical hedonic model was street lighting, pedestrian pavements, have a positive effect on
Babawale18 infrastructure in rental adopted. good drainage systems, neighbourhood residential rental values.
Nigeria values. security, & public waste removal
services.
10. Emoh et Determinants of residential Correlation, factor Accessibility, neighborhood quality, land More emphasis was on
al.19, land values. analysis & multiple title, zoning regulations, transportation, neighbourhood & locational
Nigeria regression analysis improvement tax, view of amenities. attributes determining
values.
11. Oduwole Dynamics influencing rent Stepwise hedonic Access road, number of rooms, number Structural, locational &
& Eze20, apartment prices. regression with double of bathroom, lot size, electricity, neighbourhood
Nigeria log model proximity to CBD, the presence of characteristics are all
schools & crime rate. relevant.
12. Oloke et Factors affecting residential Tables, percentages & Proximity to the highway, number & size Structural, locational &
al.21, property values. relative importance of bedrooms, conveniences, good roads, neighbourhood
Nigeria index. drainages & security. characteristics are all
relevant.

5. DISCUSSSION
The concept of willingness to pay (WTP) to maintain
From the literature review of past studies on land use or achieve utility is very relevant to land use and property
and property value determinants, it can be seen that the value analyses, since in actuality, what really determines
major determinant factors of land use and property values land use is the interest in such land. The said interest
fall within the classification of structural, locational and consequently creates demand which sustains property
neighbourhood attributes. values.
The willingness to pay for these attributes by a The widely used hedonic price modelling is based
household defines the interest shown on a property. upon the concept of willingness to pay (WTP) for the
3 Adv. Sci. Lett. Vol. 4, No. 2, 2015 1936-6612/2011/4/400/008
doi:10.1166/asl.2011.1261
 Adv. Sci. Lett. 4, 400–407, 2015 RESEARCH ARTICLE

implicit attributes of property that enables it to give utility Also, the vicinity of the CBD was crowded due to
or satisfaction to the property owner or user. This model the proliferation of human activities and competition for
was amplified by Rosen22. The model centred on the space thereby causing a plethora of urban problems such
principle that the price/value of a commodity is de- as overcrowding, traffic congestion, noise, and
termined by the utility that the various attributes of the contravention of urban planning (negative externalities).
particular product bears. When the property values are People who could not afford houses in the vicinity of
regressed on the various housing attributes (structural, the CBD had to secure residence away from the CBD.
location, neighbourhood), the empirical levels of the These people spent more on transport costs to and from
coefficients of the various attributes constitute the work due to the distance but had more space and lot sizes
hedonic prices of the various features. The willingness to in their residential dwellings owing to less competition
pay for the attributes, therefore, determines the value or and less crowd in such areas.
price of the property. The willingness and the means to pay for utility and
The willingness to pay concept was first advocated satisfaction in various forms – accessibility, less transport
by Alonso’s4 bid rent function theory in tandem with the costs, more space, security and safety, public utilities and
Monocentric city model which includes the works of infrastructure, conducive living environment –
Muth5 and Mills6. fundamentally determined forms of land use and
The Monocentric city model propounded that land residential property values.
values, house prices (rents) and population density all Even with the current modern day complexities of
decline with distance from the CBD. cities where several CBDs are found in an urban
settlement (Polycentrism), the dynamics of land use and
property value still revolve around the nearest CBD
MUTH ALONSO MILLS (activity focal point) that exerts influence on properties
(essentially Monocentric effect).

BID RENT FUNCTION

6. CONCLUSIONS
Land Values Land Values
House Prices THEORY House Prices
Population Density Population Density
The basic principles of land use and property value
which are essential in real estate discourse have been
discussed in this study.
Land Values
It is pertinent to note that all the determinant factors
of land use and property value revolve around the
traditional hedonic postulation of willingness to pay
Willingness to Pay
for Utility
MONOCENTRIC CITY Choice of Residential (WTP) for structural, locational and neighbourhood
MODEL
by Households location by Households
to maximize utility attributes of property. Alonso’s bid rent function theory in
conjunction with the Monocentric city model first
conceptualised WTP to attain a certain level of utility for
Urban Land Use
residents in certain locations and the theory still remains
Changes very relevant even with the inconsistencies later
discovered with regard to the distance-decay relationship
submission (Kabba & Li2; Levy & Lee24; Aliyu et al.14;
Brempong25; Uju & Iyanda15).
Residential Property
Rental Values The study further established the nexus between the
Monocentric city model and Rosen’s Hedonic Price
Model. Modern land use and property valuation analytical
Fig. 2: Foundation of models used for land use techniques are hinged upon this platform.
and property value analysis Real estate professionals in general and scholars and
Source: Adapted from McDonald & McMillen23
researchers in particular will better appreciate the
importance of utility, interest and willingness to pay
(WTP) for attributes as very crucial in any real property
Property characteristics which comprise of locational, decision.
neighbourhood and structural attributes are represented in
the depiction of foundation of models used for land use ACKNOWLEDGMENTS
and property value analysis shown in Figure 2.
The primary consideration was distance to the CBD This work was supported in part by Universiti Tun
(positive externality). People who could afford houses in Hussein Onn, Malaysia (UTHM) and Nigerian Tertiary
close proximity to the CBD (location) spent less on Education Trust Fund (TETFUND). The writers express
transport costs to and from work and other public utilities their profound gratitude to them for the opportunity.
(neighbourhood). The houses there are of higher values
but have less lot sizes and space (structural).
4
RESEARCH ARTICLE Adv. Sci. Lett. 4, 400–407, 2015

REFERENCES Residential Property in Ibadan Metropolis, Nigeria. Property

Management, 32(3) (2014), 224-240.
[1] D.M. Geltner, N.G. Miller, J. Clayton, P. Eichholtz. Commercial
Real Estate Analysis and Investments (2007). 2nd Edition. [18] F. Famuyiwa, G.K. Babawale. Hedonic Values of Physical
Mason, USA: South Western Cengage Learning. Infrastructure in House Rentals. Journal of Facilities
Management, 12(3) (2014), 211-230.
[2] V.T. Kabba, J. Li. Determinants of Urban Land Price in Freetown,
[19] F.I. Emoh, A.O. Oni, C.C. Egolum. Prioritizing Residential
Sierra Leone. Journal of American Science, 7(2) (2011), 213-223.
Land Value Determinants in Onitsha, Nigeria. International
Journal of Academic Research in Business and Social Sciences,
[3] J. Harvey, E. Jowsey. Urban Land Economics (2004). Hampshire: 3(3) (2013), 201-213.
Palgrave Macmillan Ltd.
[20] H.K. Oduwole, H.T. Eze. A Hedonic Pricing Model on factors
[4] W. Alonso. Location and Land Use (1964). Cambridge, Mass.: that Influence Residential Apartment in Abuja Satellite Towns.
Harvard University Press. Mathematical Theory and Modeling, 3(12) (2013), 65-73.

[5] R.F. Muth. Cities & Housing (1969). Chicago: The University of [21] O.C. Oloke, F.R. Simon, A.F. Adesulu. An Examination of the
Chicago Press. Factors Affecting Residential Property Values in Magodo
Neighbourhood, Lagos State. International Journal of Economy,
[6] E.S. Mills. Studies in the Structure of the Urban Economy (1972). Management and Social Sciences, 2(8) (2013), 639-643.
Baltimore: The John Hopkins University Press.
[22] S. Rosen. Hedonic Prices & Implicit Markets: Product
[7] R.J. Arnott, D.P. McMillen (Eds.). A Companion to Urban differentiation in Pure Competition. Journal of Political
Economics (2006). Malden, MA: Blackwell Publishing Ltd. Economy, 82(1) (1974), 34-55.

[8] T. Agbola, L. Egunjobi, C.O. Olatubara, D.O. Yusuf, M. Alabi [23] J.F. McDonald, D.P. McMillen. Urban Economics and Real
(Eds.) Contemporary Social Science Research Methods: A Estate: Theory and Policy (2007). Malden, MA: Blackwell
Practical Guide (2013). Lagos: MURLAB Searchwisdom Publishing Ltd.
Educational Publishing Services.
[24] D. Levy, K.C. Lee. Neighbourhood Identities and Household
[9] C. Teddlie, A. Tashakkori. Foundations of Mixed Methods Location Choice: Estate Agents’ Perspectives. Journal of Place
Research: Integrating Quantitative and Qualitative Approaches Management & Development, 4(3) (2011), 243-263.
in the Social and Behavioral Sciences (2009). Thousand Oaks,
CA: Sage Publications, Inc. [25] K.A. Brempong. Urban Economies & Globalization: Exploring
Externally-Induced Urban Expansion & Impact on Peri-Urban
[10] C. Liew, N.A. Haron. Factors influencing the rise of House price Land in Accra, Ghana. Ph.D. Dissertation (2012), University of
in Klang Valley. International Journal of Research in Florida, USA.
Engineering and Technology, 2(10) (2013), 261-272.

[11] M.F. Dziauddin, S. Alvanides, N. Powe. Estimating the Effects

of Light Rail Transit (LRT) System on Property Values in Klang
Valley, Malaysia: A Hedonic House Price Approach. Jurnal
Teknologi, 61(1) (2013), 35-47.

[12] T.S. Ong. Factors Affecting the Price of Housing in Malaysia.

Journal of Emerging Issues in Economics, Finance and Banking,
1(5) (2013), 414-429.

[13] J.E. Larsen, J.P. Blair. Price Effects of Surface Street Traffic on
Residential Property. International Journal of Housing Markets
& Analysis, 7(2) (2014), 189-203.

[14] A.A. Aliyu, R.B. Kasim, D. Martin. Impact of Violent Ethno-

Religious Conflicts on Residential Property Value
Determination in Jos Metropolis of Northern Nigeria:
Regression Analysis Results. OIDA International Journal of
Sustainable Development, 4(9) (2012), 35-49.

[15] I.V. Uju, S.T. Iyanda. Comparative Analysis of the

Determinants of Residential Land Values. Chinese Business
Review, 11(2) (2012), 187-192.

[16] O.A. Kemiki, I. Ojetunde, A.B. Ayoola. The Impact of Noise

and Dust level on Rental Price of Residential Tenements around
Lafarge Cement Factory in Ewekoro town, Nigeria. Ethiopian
Journal of Environmental Studies & Management, 7(2) (2014),
108 -116.

[17] O.J. Adegoke. Critical factors determining Rental Value of

5 Adv. Sci. Lett. Vol. 4, No. 2, 2015 1936-6612/2011/4/400/008
doi:10.1166/asl.2011.1261

View publication stats