Urban Economics and Land Use
This domain tests why land uses sit where they do, how land value is created and captured, and what distorted incentives do to a city's form.
Concepts to command
- Bid-rent / location rent (Alonso, 1964; Muth–Mills) - uses with steeper rent-distance gradients outbid others near the centre; the boundary between two uses is where their bid rents intersect.
- Highest and best use, agglomeration economies, externalities, rent gap (Smith) and gentrification.
- Land value capture, betterment, development charges; density bonuses as a negotiated instrument.
- Iranian specifics - post-1982 urban land nationalisation; heavy municipal reliance on construction-permit and density revenue ("selling density"), which links city budgets to built volume; waqf land constraints; key-money practice in rental markets.
Worked example
Commercial use pays 600,000 tomans per m² of floor per year and builds FAR 3; residential pays 300,000 and builds FAR 2; transport cost is 40,000 tomans per km per m² of land per year. Commercial land bid at distance d = 3×600,000 − 40,000d; residential = 2×300,000 − 40,000d. Commercial wins everywhere - the floor-area multiplier dominates. Drop commercial FAR to 1.5 and the two bid curves cross where 900,000 − 40,000d = 600,000 − 40,000d, which never happens: transport cost is identical, so only a differential in transport sensitivity creates a boundary. The lesson: in a one-dimensional model, the boundary needs a difference in slope, not just in intercept.
Traps
- Confusing FAR with residential density (dwelling units per hectare).
- Ignoring that infrastructure cost rises with density and must be netted out.
- Treating nationalisation as the abolition of land markets.