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Lecture notes, lectures 6 - land-use patterns

Regional and Urban Economics (Universidad Carlos III de Madrid)

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LAND-USE PATTERNS
1. The spatial distribution of employment
In order to explain how jobs are distributed across a typical metropolitan area,
this area can be divided into two parts: a central area and the rest of the metropolitan
area. It can also be done taking into account census tracts (a small, relatively
permanent statistical subdivision of a country)
Jobs inside and outside the central area
The central city of a metropolitan area is defined as the large central
municipality. The typical metropolitan area has many other municipalities which
comprise the “suburban” area. The trend that can be observed is a continuation of a
long trend of employment decentralization and tendency to locate in the suburbs. The
median location (where half jobs are closer and half are farther away) is seven miles

2. Employment subcenters
A subcenter is defined as an area where employment density is at least 225
workers per hectare and total employment is at least 10.000 workers. Subcenters can be
divided into five types (in Los Angeles) depending on the products produced:
• Mixed-industrial subcenters: they started out as low-density manufacturing areas
near a transport node and grew as they attracted other activities.
• Mixed-service subcenters: like traditional downtowns, provide a wide range of
services, and many functioned as independent centers before they were absorbed
into the metropolitan economy.
• Specialized-manufacturing subcenters: include old manufacturing areas as well as
newer areas near airports that produce aerospace equipment.
• Service-oriented subcenters: employ workers in service activities such as medical
care, entertainment and education.
• Specialized entertainment subcenters: employ workers in television and film.
The role of subcenters in the Metropolitan Economy
• Subcenters are numerous in both old and new metropolitan areas
• Most jobs are dispersed rather than concentrated in CBDs and subcenters
• Many subcenters are specialized, indicating the presence of localization
economies
• CBD continues to serve as place for face time
• Employment density decreases as distance from centre increases
• Subcenter firms interact with firms in centre
• Firms in different subcenters interact, indicating that subcenters have different
functions and are complementary.

3. The spatial distribution of population

The median residential location is eight miles from the city centre, one mile
beyond the median location for employment. Urban population is a bit more
decentralized than urban employment.
People living close to the centre economize on land, leading to higher population
density. The density gradient is defined as percentage change in density per additional
mile from the city centre. For instance, the density gradient for Boston is 0,13 what
meand that population density decreases by 13% for each additional mile from the city
centre. For most large metropolitan area in the United States, the density gradient is in
the range 0,05 to 0,15.
Built-up density, as opposed to residential density, is the total of a population of a

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metropolitan area divided by the amount of land in urban use. Asian cities are at the top
of the density list, and U.S. Cities are at the bottom.

4. The rise of the monocentric city

Cities looked very different just 100 years ago. At the start of the 20th century,
jobs were concentrated near the city centre. Manufacturing firms located close to
railroad terminals and ports to economize on the cost of transporting inputs and outputs
within the city. Office firms clustered in the CBD to facilitate the rapid exchange of
information. Workers either lived near the central city and commuted by foot or road
streetcars from suburbs to the city centre.
Innovations in Intracity transportations
The Industrial Revolution also generated a series of innovations in intracity
transportation that decreased comuting costs. Before the 1820s, most urban travel was
by foot, although a few wealthy people traveled by private horse-drawn carriage. During
the 1820s, some innovations in transportation were carried out:
• Omnibus (1827): horse-drawn wagon introduced firstly in New York that was the
predecessor of the bus.
• Cable cars (1873)
• Electric trolley (1886)
• Subways (1895): the world's first practical subway started operation in London in
1890.
These innovations decreased commuting costs and increased the feasible radius of
cities (the distance that can be traveled in an hour). The design of the public transit
systems of the 19th century facilitated the large concentrations of employment near city
centres (hub-and-spoke system).
The technology of Building Construction
Another limit to city size comes from the costs of building high-density housing to
accommodate workers. In the early 1800s, wood buildings were made of posts and
beams, with 16-inch timbers, and the practical height limit was three floors. Given that
highly skilled workers were needed, urban buildings were relatively expensive.
The balloon-frame building, introduced in 1832, brought the introduction of
inexpensive manufactured nails to fasten the process using less skilled labor. This
combination decreased the cost of urban buildings significantly, contributing to the
growth of monocentric cities.
Office buildings were transformed by the switch from masonry to steel frames,
which allowed the construction of the first skyscraper in 1885.
A limit on building heights is the cost of vertical transportation. In 1854, Elisha
Otis demonstrated the safe use of a steam-powered elevator. The key innovation was a
safety latch that prevented the elevator car from plummeting down. When the steam
engine was replaced by electricity, the cost of running elevators decreased and their
range increased. The elevator changed the pricing of space on different floors of an
office building.
The primitive technology of freight
Most intercity freight traveled by railroad or water. For transportation within the
city, manufacturers used horse-drawn wagons to transport their freight from factories to
the city's port or railroad terminal.

5. The demise of the monocentric city

Decentralization of Manufacturing:
The truch provided an alternative to the horse-drawn wagon used for the trip
from factory to port or rail terminal. It was twice as fast and half as costly as the horse-

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drawn wagon. A manufacturing firm that moves away from a central port to a suburban
location incurs higher freight costs (the cost of transporting output to the port increases)
and lower wages (as the factory moves closer to its workforce, commuting time
decreases, decreasing wages).
In the era of the horse-drawn wagon and the streetcar, the cost of moving freight
was high relative to the cost of moving workers, so as firm moved away from the city
centre, freight costs increased more rapidly than wages dropped. It was cheaper to
move the workers from the suburbs to the central factory than to move output from a
suburban factory to the export node.
Two decades later, trucks were also used for intercity transport. Improvements in
the truck made long-distance travel feasible, and the expansion of the intercity highway
system facilitated intercity truck traffic. Eventually, the truck became competitive with
the train and the ship for intercity freight. As manufacturers switched from trains and
ships to trucks, they were freed from their dependence on the railheads and ports in the
city centres, and they moved to sites accesible to the intercity highways. In modern
cities, manufacturers locate close to highways and beltways to get easy access to the
interstate system.
The automobile contributed to the suburbanization of manufacturers. In a modern
auto-based city, production sites along highways and beltways are accessible to the
metropolitan workforce, so firms have more location options, including suburban
locations.
Two other factors contributed to the suburbanization of manufacturing. First, the
switch from the traditional multistory plants of the 19th century to modern single-story
plants increased the relative attractiveness of suburbs, where land prices are lower.
Second, an increase in the importance of air freight caused firms to locate near
suburban airports.
Decentralization of office employment
Before the 1970s, most office firms located in the CBD because the central
location facilitated face time with other office firms. In the last 30 years, advances in
communications technology have allowed more office activities to be performed outside
CBDs. Firms can decouple their operations, with information processing in the suburbs
and activities requiring face time in the CBD.
Decentralization of population
The population density gradient is defined as the rate at which population density
decreases with distance. A smaller gradient indicates that density decreases less rapidly
with distance and population is less centralized. In te US, this gradient has been
decreasing for 120 years.
The decentralization of metropolitan population is a worlwide phenomenon
caused by different factors:
• Rising income: it increases the relative attractiveness of suburban location. It also
increases the opportunity cost of commuting, increasing the relative
attractiveness of locations close to workplaces.
• Lower commuting costs: technological innovations have decreased the monetary
and time costs of commuting. A decrease in commuting costs decreases the
relative cost of living far from the city centre, contributing to suburbanization.
• Old-housing: the deterioration of central-city housing encourages households to
move to the suburbs, where most of the new housing is built.
• Central-city discal problems: many central cities have relatively high taxes,
encouraging households to move to low-tax suburbs.
• Crime: most central cities have relatively high crime rates, encouraging
households to move to the suburbs.

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• Education: suburban schools are often considered superior to central-city schools,

encouraging households to relocate to the suburbs.

6. Urban Sprawl
As a city's population increases, the city can grow up b building taller buildings, or
it can grow out by occupying more land. The people concerned about urban sprawl
suggest that there is too little “up” and too much “out”.ith low density implies
movements to the surrounding agricultural areas mainly, and normally there is little
planning control of land subdivision. Growing w Between 1950 and 1990, urban land
increased 2,7 times as fast as urban population in the United States (if population
increased from 100 to 200, urban land would increase from 100 to 307 which is a
problem for agricultural land and green areas).
One measure of urban sprawl is the density of economic activity. The lower the
density, the larger the land required to accommodate a given population, and the
greater the spread or sprawl of the metropolitan area.
One way to convey the change is by computing the elasticity of urbanized land
(the percentage change in land in urban use) with respect to the population (the
percentage change in urban population).
The causes of Sprawl (the United States)
• Higher income: land is a normal good, so the higher the income, the larger the
consumption of land and the lower the population density.
• Low cost of travel: this allows people live relatively far from their jobs and
frequent destinations. Distand land is cheaper, so lot sizes are larger and
population density is lower.
• Culture: variations in density across continents could reflect differences in
preferences for living space.
• Government policies: some policies encourage low densities in large metropolitan
areas:
– Congestion externalities: people who use streets and highways during the
peak travel period slow other drivers down, imposing an external cost. This
underpricing of urban transportation encourages people to commute
relatively long distances from locations far from the city centre where the
low price of land encourages large lots.
– Mortgage subsidy: subsidies increase housing consumption. As land and
housing are complementary goods, the mortgage subsidy increases lot
sizes, decreasing density.
– Underpricing of fringe infrastructure
– Zoning: establishing minimum lot sizes to exclude high-density housing.
Glaeser and Kahn argue that sprawl is caused mainly by the automobile and the
truck. These two travel modes eliminated the orientation of firms and workers toward
the indivisible transportation infrastructure near the city centre. These authors show
that sprawl is ubiquitous across metropolitan areas with all levels of income. They
suggest that subsidies for highways and housing are too small to have much an effect.
EU vs US Policies and Sprawl
Why is urban population density higher in European cities?
• Higher cost of personal transportation in the EU: gas tax and auto sales tax.
• Promote small neighborhood shops that facilitate high-density living: electricity is
more expensive in Europe, so it would be very expensive to operate the huge
refrigerators and freezers that allow Americans to make infrequent trips to
suburban megastores. As a result, most Europeans rely to a greater extent on
more frequent trips to neighborhood stores. In addition, many European countries

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restrict the pricing and location of large retailers, protecting small shops from
competition. The result is more neighborhood shops, and higher prices for
consumers.
• Large agricultural subsidies allow small farmers on urban fringes to outbid city
dwellers for land in Europe.
• Investment in transportation infrastructure favors mass transit rather than
highways. In order to suppot intermediate bus service, 31 people are needed per
hectare.
Why sprawl matters?
Classically, urban sprawl has been a US phenomenon, stemming back to the early
part of the 20th century. It has been encouraged by the use of private cars and the
preference for detached houses. However, in Europe, cities have traditionally been
much more compact, developing a dense historical core. Nowadays, urban sprawl is also
a common phenomenon throughout Europe.
Why are cities sprawling?
There are many factors behind urban sprawl. It partly reflects consumer choice
and their desire to realize new lifestyles ir suburban environments. Moreover,
improvements in transportation links make distances shorter.

7. Are skyscrapers too tall? Economies of skyscrapers

A high price of land generates tall buildings as firms substitute capital for
relatively expensive land. A recent study suggests that skyscrapers result from
competition between firms for the tallest building in a city. Competition to be the
tallest building reduces efficiency and profits.
Economies of skyscrapers
If a firm is planning to construct a office building on a given plot of land, the firm
will have to choose a building height (number of floors). The firm can use the marginal
principle to decide how high to go, choosing the height that makes marginal benefit
equal to marginal cost. Height may increase as long as marginal benefit is larger than
marginal cost.
The marginal benefit of height equals the rent to be collected from office firms
on an additional floor. Normally, marginal-benefit curve is negatively sloped because a
taller building devotes more space for vertical transportation but, as building height
increases, total rent increases although at a decreasing rate.
The marginal cost of height is the additional construction cost from building one
more floor. The marginal cost curve is positively sloped because a taller building requires
extra reinforcement to support its more concentrated weight. As building height
increases, the total construction cost increases at an increasing rate.
When two firms compete for building the highest building in a city, there is always
a winner and a loser. There is a large gap between both buildings height and the
competition is wasteful because it reduces total profits for both firms.

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