We do an awful lot of driving just to do what we need
to do. This is because transportation engineers and land
use planners have confused two fundamental concepts:
access and mobility.
By confusing these two principles, we spend an
inordinate amount of money on transportation services,
most of it on roads and highways. One 1993 study
calculated that the total costs of motor vehicle
transportation to our society equal approximately a
fourth of our gross domestic product (GDP).[3] The study
concluded that "when the full range of costs of
transportation are tallied, passenger ground
transportation costs the American public a total of $1.2
to $1.6 trillion each year. Just the costs of automobile
crashes represents a figure equal to 8 percent of the
American GDP.[4] Japan, by way
of comparison, spends an estimated 10.4 percent to
satisfy all its transportation requirements, although the
figure might be a bit low because not all externalities
are included in the calculation.[5] Road user fees
in 1991 totaled only about $33 billion, whereas the true
costs to society were ten times that;[6] put another
way, drivers pay only 10 percent of the true costs of
their motor vehicle use.[7] The balance is
paid by society, effectively subsidizing highway use by
paying for all but the marginal out-of-pocket operating
costs.
The relationship between transportation costs and land
values can be made even clearer by empirical study of how
land values increase as one moves toward the center of
the city. In an investigation for the Urban Land
Institute, the author concluded that, for Portland,
Oregon, each additional mile [traveled] translated into
slightly more than $5,000 in housing costs; closer-in
locations command a premium, those farther out save
money. A ten-mile difference, all other things being
equal, would amount to about $56,000 in new home
value.
For a household in which one worker drives downtown
(or at least to a more central location) to work, that
ten-mile difference may amount to 4,600 miles annually,
assuming 230 days of commuting and a round-trip of 20
miles each day. Moreover, if non-work trips to the
central area and elsewhere doubled that amount, the
tradeoff would be about 9,000 miles annually, which could
mean a higher/lower driving cost of $3,000 annually, not
counting the time saved/spent.[8]
Such are the savings for living closer to the urban
center by ten miles. If the urban resident has to rely on
a car nonetheless, subtracting some $3,000 annual travel
expenses will still leave him paying again that much (and
likely more) to own a car. Author James Kunstler put the
true costs along with other experts at about $6,100
annually seven years ago.[9] The American
Automobile Association calculated that a car driven
15,000 miles in 2001 cost 51 cents per mile, or
$7,650.[10] This figure
reflects only direct costs to the driver, not the
additional costs passed on to society.
The latter figures include externalities such as
pollution and the costs of highway crashes. Hortatory
public pleas for people to tune up their engines so that
they pollute less, to inflate tires properly, and to
drive more safely are not likely to change the reality
that people are forgetful and fallible. Pollution-free
cars are not available; people must drive to participate
in this society. The consequences of sulfur dioxide,
carbon dioxide, and ozone are no longer a matter of
debate; they are scientific fact. Despite frequent
headlines about replacing the internal combustion engine,
all the realistic substitutes also ultimately rely on
fossil fuel power, solar-powered cars are far in the
future, if at all, and also fail to deal with any
transition. And every person driving his or her own car
multiplies the probabilities of accidents. When people
step into a car, they are seldom mindful of such odds.
Yet if the direct pecuniary costs of driving increase in
any substantial way, there will surely be significant
changes in the trade-offs involved in
housing/transportation choices. As will be made clear
later, making costs visible and linking them to private
personal behavior is one way to ensure that
transportation pays its own way. ...
Sooner than Americans are likely to bear the real
burden of global warming's environmental consequences,
they are likely to experience the onset of price rises
for petroleum. Experts are divided, but among those best
insulated from the pressures of bias, there is increasing
consensus that the peak of oil extraction worldwide will
come sometime around 2010 if not sooner.[11] Rising prices
will not induce greater supply; it will not change the
fact that the world will have passed the point of most
easily extracted oil and will enter a long and
increasingly steep period of declining availability. It
is rather a matter of physics: When it costs more in
energy to bring oil from deep in the earth than what can
be extracted, it is not worth the investment. Even the
greater wealth of American society will not insulate it
from world competition over what is a limited and
fungible commodity. How this alters the calculations
Americans make about where to live and work will
increasingly depend on the price they are willing to pay
for transportation service. ...
Land Rent
From the standpoint of an economic geographer and for
some land economists, land rent is simply capitalized
transportation cost. Land rent is the surplus generated
by social activity on or in the vicinity of locational
sites that accrues to titleholders of those parcels.
Whether or not it is recaptured by public policy, rent is
a natural factor deriving from the intensive use of
natural capital. One must return to nineteenth-century
classical economics to appreciate the importance of
economic rent or land rent; neoclassical economic
frameworks have largely discarded it.[13] More intensive
use of high-value land sites leads to site configurations
that are less dependent on transportation services. Land
rent is highest where the greatest traffic and market
exchanges occur, that being at the center of large
conurbations. Comparing land values of urban property
parcels, the highest land rent in the urban cores and
traffic junctures are analogous to the contours of land
elevations. Mountain peaks gradually slope down to
valleys and flatland regions and continue outward until
at distant points — perhaps at the poles of the
earth — land sites have no market value at all.
The differentials in land values are profound, even
more than most people realize. In 1995, in the small city
of Ithaca, New York, the highest quintile of land had a
value of over $56,000 per acre in the downtown center,
whereas the lowest quintile only a mile away falls to
less than $3,000.[14] Large city
centers have far higher site prices. Even in Polk County,
Iowa (which includes Des Moines), in the middle of
cornfields where I did a study two years ago, the highest
urban value land site was $31.3 million per acre, which
quickly declined to about $20,000 per acre only about a
mile away. In the spring of 1998, one land parcel (the
building was to be razed) of less than an acre in New
York City's Times Square and split in two pieces by
Broadway was sold by Prudential Life to Disney for
roughly $240 million.[15] To take
another instance, a nine-acre tract on the East River in
New York City occupied by an obsolete power plant was
purchased by Mort Zuckerman to build high-rise
condominiums two years ago. The sale price was in the
neighborhood of $680 million and would have been higher
were it not for some enormous costs associated with the
demolition of the old structures.[16] It should be
noted that the overwhelming proportion of land value is
in cities; relatively speaking, the site values of
peripheral lands, typically used for agriculture and
timber growth, are negligible. Land values are high in
urban areas because, over time, rent accrues to a site.
Each improvement in proximity to a property parcel
enhances the value of all other parcels. This makes even
unimproved sites attractive objects for speculation,
particularly when land sites surrounding it are to be
improved by adding either transportation service or new
structures. One nine-mile stretch of interstate highway
in Albany, New York, costing $125 million to construct,
has yielded $3.8 billion in increased land values
(constant dollars) within just two miles of its corridor
in the forty years of its existence.[17] This is a
thirty-fold return in a time span typically used for bond
repayment! The Washington Metro created increments in
land value along much of the 101-mile system completed by
1980 that easily exceeded $3.5 billion, compared with the
$2.7 billion of federal funds invested in Metro up until
that time.[18] Any major
building construction project, private or public, will
have a similar effect on adjacent land sites.
Differentials in land value can have a profound effect on
decisions made by titleholders, either positively by
inducing appropriate development in urban cores or
negatively by giving monopoly titleholders power to hold
sites out of use for long-term speculative gain. Such
decisions of course determine the character of urban
configurations and society as well. ... read the whole article
The other component of a real property parcel is the
land value, which reflects a market price based on very
different criteria. Despite the apparent reality that
land is visible and tangible, land prices reflect
the value of location more than they do the material
content they contain. This is easy to understand
when one reflects that if some earth is removed from a
site and brought to another place, the prices of each
site is largely unaffected.21 Location value has
duration, and the value of this flow of rights for
exclusive use of a site requires a flow price rather than
a stock price. This flow is really what classical
economists refer to as ground rent or economic rent.22
Also known as “land rent,” it is defined as
“a payment to a factor beyond what is needed to put
that factor into use; [it is a price for use] beyond what
is needed to maintain a market for land.”23 Land
has a selling price because we have come to regard land
sites as objects, as commodities to be traded,24 and they
are understood to have a static price, as a stock rather
than as a flow. That stock price really needs to be
understood instead as the “present value” of
the flow of ground rent minus taxes. “Present
value” is an economic term that refers to
“the worth of a future stream of returns or costs
in terms of their value now.”25 Consideration in
this way brings to the fore other concerns and
factors.
The market price of a location depends not only on
ground rent and taxes, effectively its present value, but
also upon the “discount rate,” or interest
rate, that prevails in the market used to calculate its
returns and costs. When interest rates go up, the market
prices of sites fall, just as for any other economic
encumbrances placed on locational sites.
The market prices of sites also fall if taxes go up
and nothing else changes. However, an increase in taxes
is often accompanied by improvements in any obligations
linked to parcel locations. These too are sometimes
easily “commodified,”26 and may vary
according to time period, changed neighborhood
expectations, emergency conditions, government
regulations, and so on.27 These contingent links often
constitute services that raise the market prices of sites
more than the taxes depress them. Still another
way of understanding the value of locations is to see
them as capitalized transportation costs.28 Savings in
transportation are likely to be expressed in the market
price of sites. One way or another people are willing to
pay for access to exchange markets: either in the form of
site proximity or in the form of travel expenses. It is
the reason why urban cores have higher site rents than
peripheral areas and hinterlands. Hence the differential
value of locations, dependent, not on anything
titleholders do, but rather on the quality of community
amenities. These all have a price.
The prices for services that raise land rents, like
the services themselves, should be regarded as flows
rather than as stocks. But, ironically, our payments for
such services are not understood as flows affecting site
values at all, but are seen rather as related to stock
prices. The values of our property parcels are viewed
solely as stocks, and therefore our taxes are seen as
stock taxes. ... read the whole
commentary