Abstract
When asked to explain the spatial arrangement of a city today, economists typically start from the location-theoretic Alonso-Mills-Muth paradigm wherein competitive bidding for land leads to concentric rings of land uses around a city center or sub-center. With the publication of Principles of City Land Values in 1903, Richard Hurd became prominent at the time in thinking about the growth and development of modern commercial cities. Often cited and yet rarely interpreted, Hurd offers a different, but complementary, perspective on the economy of the city that emphasizes the role of real estate and the internalization of externalities through districting . Hurd wrote at a time when land use planning was largely private , not public. However, many of the tools that are used in land-use planning today (e.g., plans of subdivision , restrictions on land use, and neighborhood amenities) originated in private planning as practiced in the late 19th century. In this chapter, I re-interpret Hurd in the context of modern real estate thought and consider how a real estate perspective helps us better understand spatial arrangement in a city. In an important sense, this chapter bridges between the focus on real estate investment in Chaps. 12 and 13 and the focus on land use planning and transportation in Chap. 15 through Chap. 20. Perhaps as well as any chapter in this book, this chapter exemplifies the importance of self-actualization : homeowners using their autonomy (freedom) to make choices in the marketplace that realize a life important to them.
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Notes
- 1.
In my view, it is regrettable that Schumpeter (1954) —the authoritative and comprehensive compendium of economic thought up to mid-20th century—overlooks Hurd altogether.
- 2.
In describing a library collection that might spur public debate about the merits and practice of town planning, Nolen (1914, p. 261) indicates that there were comparatively few books at the time from the point of view of business. Nolen describes Hurd’s Principles of City Land Values as among the best of these. McNamara (1931) also includes Hurd’s book in an early bibliography on zoning.
- 3.
Hurd’s book is excerpted in Fetter (1912) and Marshall et al. (1913) . It is the book’s focus on the importance of Ricardian rents that makes it of interest in Economics. However, missing from this book is any other concept from the newly minted neoclassical economics, an area that was to become so important in 20th century economic thought. Perhaps because of this, the book is widely cited but rarely discussed in detail. Citations by scholars in Economics include Cornick (1934) , Wolff (1952) , Wendt (1957) , Alonso (1964), Nourse (1963, 1967), Goldstein and Moses (1973) , Perloff (1973) , Huszar (1977) , Skouras (1980) , Greaves (1984) , Gaffney (1994) , Atack and Margo (1998) . Citations by scholars in Geography include Colby (1933) , Pred (1964) , Berry (1965) , Berry and Horton (1970, pp. 10–13), Ray (1971) , Ward (1966 , 1968 ), Daly (1967) , Brown (1968) , Adams (1970) , Brodsky (1970) , Bowden (1971) , Hartshorn (1971) , Ray (1971), Wilson (1972) , Moriarty (1974) , Soot (1974) , Whitehand (1978) , Domosh (1988 , 1989 , 1990 ), Walker (1989) , Harris (1990) , Krim (1992) , Filion et al. (1999) , Adams (2005) , Brown and Robinson (2006) . Citations by scholars in Law include Bonbright (1934) . Citations by scholars in Real Estate include Bodfish (1930) , Weimer (1935 , 1984 ), Fisher (1958) , Hoyt (1960 , 1964), Browning (1963) , Jaffe and Sirmans (1984) , Brown (1993 , 1994 ), Söderberg and Janssen (2001), Janssen (2003) , Ramsey (2004) . Citations by scholars in Sociology include McKenzie (1921), Firey (1945) , Martin (1953) , Feldman and Tilly (1960) , Anderson and Egeland (1961) , Winsborough (1962) , Schwirian et al. (1990) . Citations by scholars in Urban Studies include Wolff (1952) , Gregor (1957) , Rannels (1961) , Hancock (1967) , Tabb (1972) , Senior (1974) , Renard (1975) , Romanos (1978) , Ericksen and Yancey (1979) , Kasarda and Lineberry (1980) , Staski (1982) , Pack (1984), Jud (1985) , Weiss (1989a , b , 1995 ), Pivo et al. (1990) , Deakin (1994) , Fischler (1998) , Phe and Wakely (2000) , Clark (2000) , Meyer (2000) , Conzen (2001) , Meligrana and Skaburskis (2005) , Bilham (2009) .
- 4.
In my view, there are important similarities between Hurd’s book and Cooley (1894) . Cooley too discusses the locations of cities and towns relative to breaks in shipments (pp. 90–100), and the importance of land rents determined by shipping costs (pp. 123–128).
- 5.
There is evidence that Thünen had been influential in English language scholarship at the time even though his books had not yet been translated: see Wagner (1886) , Clark (1888), Hyde (1898) , Johnson (1902) , McFarlane (1903). Without mentioning Thünen, Cooley (1894, pp. 123–128) also discusses the relationship between land rent and shipping cost. Interestingly, Hurd’s grasp of the urban dimension of land rent lacks the clarity that would later be revealed in the work of Wingo (1961) and Alonso (1964). For example, Hurd argues (p. 79) that the fact that land is cheaper away from the center has a slight tendency to further promote outward relocation that Hurd describes as evidencing an unstable equilibrium between the centripetal force of economy in the transaction of business and the centrifugal force of cheap land. Apparently, he did not understand here the idea that rents in equilibrium must differ with location to offset any potential gain in the firm’s profit.
- 6.
- 7.
In labelling frontier colonization of the nineteenth century, I am following the usage of Cronon (1991).
- 8.
An adopted statement of means and ends that codifies land use planning.
- 9.
Also known as restrictive covenants, clauses in a deed (as agreed by vendor and purchaser) that restrict future uses of the property by the purchaser.
- 10.
Hoyt (1933 , p. 17) reports that by 1831, goods could be now shipped from New York to St Louis cheaper via Chicago than via New Orleans; and this fully 17 years before the opening of the Chicago canal. As a second example, Hoyt notes that, with the opening of the Erie Canal, salt shipped from Syracuse by lake boat sold for less in Chicago than salt produced in nearby Danville, Illinois.
- 11.
Circumstances or obstacles that prevents new competitors from entering the market.
- 12.
The distinction between Ricardian rent and the notion of a market rent for land used elsewhere in this chapter concerns the marginal unit of land. To Ricardo, the marginal unit of land was without a fertility advantage. Being plentiful, such land earned a zero rent. Units of land that had better fertility would earn a monopoly (excess) profit. In contrast, even the least advantageous unit of land might earn a market rent in the sense that the total amount of land is limited.
- 13.
Elsewhere in his book, Hurd refers to ground rent as “urban economic rent”.
- 14.
There are similarities between ground rent and the notion of excess profit. As used by economists, excess profit is the profit earned by a firm over and above compensation for unpriced factors like entrepreneurial skill and owner equity. Ground rent is like excess profit in that it takes into account economic compensation for wear-and-tear on the property. It is unlike excess profit in that it not take into account compensation for entrepreneurial skill and owner equity.
- 15.
As well, Hurd ignores the idea that tenants are heterogeneous: some are more risky or costly to serve than are others. Landlords vary in characteristics (e.g., risk bearing) as well. In this sense, we can imagine the landlord choosing the segment (more risky or costly versus less risky or costly) of the rental market in which to participate. See Miron (1990) .
- 16.
A valuation of realty based on the notion that it is a financial investment characterized by a stream of rental revenues and a stream of maintenance costs.
- 17.
Discounting is an adjustment to make costs and revenues at different dates comparable.
- 18.
It is straightforward to model this also when rent alternatively is paid at the start of each period.
- 19.
Again, risk refers to a loss, but we can also imagine situations in which there is a gain.
- 20.
This is the same as (12.3) in Table 12.1. It too ignores income taxation (in this case, since Hurd predates the introduction of income tax) and the resale value of the property.
- 21.
Where the periodic rent is the same every time period (i.e., R 1 = R 2 = … = R n = R) and n is sufficiently large, intrinsic value reduces to I 0 = R/r.
- 22.
Hurd makes an intriguing argument about the impact of capital gains on market rent when he notes (p. 2) an asymmetry in speculation. In markets of the day, Hurd argued, one can speculate on rise in land prices by purchasing and holding property or by buying an option to purchase. However, he argues, it was not easy to speculate on a drop in land prices because this would require that investors be able to “short” property. To a mortgage lender like Hurd, this was an important consideration because of the implications for mortgage default, especially at a time when mortgage default insurance was unavailable.
- 23.
Where the periodic rent is the same every time period (i.e., R 1 = R 2 = … = R n = R) and n is sufficiently large, the intrinsic value reduces to P = R/r.
- 24.
I presume here that there is a level of maintenance that maximizes profit (return) to the investor. If the firm were under-maintaining the property, then profit would rise with a small increase in the level of maintenance. If the firm was over-maintaining the property, then profit would fall with a small increase in the level of maintenance.
- 25.
Discounted value of flow of future net receipts (rent revenue net of recurrent expenditure) and resale (scrap) value.
- 26.
A similar argument appears in Jacobs (1969) , Lucas (1988) .
- 27.
On the use of turnpikes (toll roads), see Albert (1972) , Bogart (2005a , b , c , 2007 , 2009 ), Raitz and O’Malley (2007) .
- 28.
An example of the latter, Hurd argued, was the greater danger of labor unrest in large cities. In this regard, it is interesting to contrast Hurd view of the with Cronon’s view of Chicago, Cronon (1991, p. 5) cites William Archer writing in 1900 of the industrial smoke of Chicago. Smoke and other pollutants would be negative externalities.
- 29.
He seems to ignore here the improvements in transportation in the nineteenth century that reduced the costs and risks of shipping: e.g., the advent of steamships, canal building, railroads, and refrigerated trucks and that advantaged particular cities such as New York.
- 30.
Hurd does not discuss here the pollution that came to be associated with industrial cities in the twentieth century and the effects this had in inducing a second tragedy.
- 31.
Hurd does not explain why. However, in small towns, duplexes structures might less risky because they are readily converted into two apartments or even one house if the market for business property were to decline. In a larger city, putting up a business building might be less risky.
- 32.
In this book, Hurd always refers to a residential district; he never refers to them as neighborhoods. Typically, a dictionary definition of “neighborhood” has sociological context: as in a district considered in regard to its inhabitants or a district forming a community within a town or city. In using “district” rather than “neighborhood”, Hurd might have intended to focus on the economic rather than social functioning; if so, it is all the more strange to me that he would refer to districts by social group/class when he seemed to be thinking only of income groups.
- 33.
Writing as he was at a time when zoning bylaws were a relatively new thing, Hurd was most likely thinking of private market solutions. For a discussion of private land use regulation and common interest developments in the period before the advent of modern public planning, see McKenzie (1994) , Davies (2002).
- 34.
Hurd did not see here that residential land had an “advertising value” akin to what he saw for commercial land.
- 35.
Here, Hurd’s original argument equating social groups and districts is at risk of being tautological. I don’t think Hurd meant to imply that every household with an annual income of $1000 lived in one district, while those with an annual income of $999 lived in another. I interpret Hurd here to mean that in general, there would be an sorting of households of similar income into distinctive districts: hence my use of “income category”.
- 36.
Amenity of a site is the presence or proximity of a desirable feature (man-made or natural).
- 37.
A person who benefits from the presence of an externality but incurs no cost.
- 38.
Hurd did not envisage here the possibility of an apartment district, e.g., a large condominium complex, where nuisances are controlled and amenities provided.
- 39.
Once again, we must be careful to avoid the tautological problem inherent in assuming each land use has its own district. I interpret Hurd to mean here simply that we expect to see categories—similar but not necessarily identical kinds—of businesses locating in any one district.
- 40.
Association of local real estate owners who cooperate to undertake improvements to better attract business to the area.
- 41.
A similar argument is elaborated in Penfold (2002) .
- 42.
Of course, we need to be mindful of the effect of the local spatial monopoly that underlies Löschian competition and that would otherwise serve to keep competitors apart. However, Hurd argues that Löschian competition is important only for retailers who draw customers mainly from the immediate vicinity.
- 43.
Obtain from a supplier in lieu of producing oneself.
- 44.
Concentric circles formed around a point in geographic space: usually a city center.
- 45.
Note here that I do not address the question of how much investment is required to produce this level of stock in a given property.
- 46.
One could alternatively assume that rent was dependent on the capital stock at mid-period or at the end of the period.
- 47.
The cynical reader might say that the assumption of a “stock” in the property at any given date is problematic as is the assumption that the market generates a fixed rent of s dollars for each unit of capital. Perhaps so. However, we can still readily imagine that the stream of rents would decline (relative to other prices) because the property is becoming rundown or obsolete.
- 48.
Here, I 0 = sK 0/(r + δ).
- 49.
Here, I include as a change of use the case where the investor upgrades the stock in a property with the intention to draw a higher rent from the same kind of tenant as before.
- 50.
Hurd seems to suggest the possibility of vacant land into which a given district might expand. However, it is not clear how a competitive land market would have that outcome except for districts at the fringe of the city.
- 51.
At the time Hurd wrote his book, tenements were an acute social problem; the principal issues being fire safety, sanitation, overcrowding, access to sunlight, and tuberculosis. See Riis (1890).
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Miron, J.R. (2017). Districting in the Urban Economy. In: The Organization of Cities . Springer, Cham. https://doi.org/10.1007/978-3-319-50100-0_14
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