Sequential Development

Abstract

One of the more interesting issues in economics is the conversion of land to alternative uses or densities. Decisions to convert land determine the pricing and spatial structure of urban areas. An analysis of the economic effect of urban policies like zoning or growth controls must include the impact on conversion decisions. Unfortunately a fully rational analysis that incorporates the stochastic nature of urban cash flows and the possibility of multiple future redevelopments is very complex. This paper analyzes the impact of multiple conversions under certainty on the value and density of urban land relative to models with only one conversion. We find that, even with only one additional conversion, land values are 10-15% higher. The density of the initial development is much lower (about half) and the density of the second is much higher (about twice) relative to the case with only one conversion. Hurdle rents also vary widely from the single-conversion case.