Land Economics 1 PDF

Land economics 1 BRE 203  Land economics “Is a social science that deals with those problems in which social conduct is strategically affected by the physical, locational or property attributes of whole surface units”. (Salter,1942) It is concerned with our economic use o...

Land economics 1 BRE 203  Land economics “Is a social science that deals with those problems in which social conduct is strategically affected by the physical, locational or property attributes of whole surface units”. (Salter,1942) It is concerned with our economic use of the surface resources of the earth and the physical and biological, economic and technological and institutional factors that condition and control our use of these resources 2  Land Economics This is the sub-discipline of economics that deals with: 1. land and land markets 2.The allocation of scarce land resources among alternative and competitive ends 3.Land economists are interested in the processes of land allocation 3  Land economics Dual process of land allocation 1. Private owners or developers seek to allocate land resources in a manner that will attain their objectives Objectives maybe economic or non- economic 2. Public regulatory bodies regulate and direct allocation of land resources in a manner that will attain society’s objectives (Which maybe economic or non-economic) 4  Land economics The existence of a dual process – what we may call developers and planners – leads to conflict. The conflict and its resolution is a major theme in land economics. Land economics deals with a problems of an economic nature. For an economic problem to exist, the relevant good or resource must be scarce. 5  Land economics Anything that is both desired and scarce will command a price. This price is set by some types of economic forces. These are market forces – demand and supply. Land economics uses the principle of demand and supply as they relate to land as a factor of production. It also analyses: 1. what influences the cost of houses. 2. The impact of economic forces on land values, land uses and land transactions. 3. It studies land and real property as a commodity for sale. 6  Land economics It is seen as an economic analysis applied to problems of land use, rent theory, land evaluation and land conservation. 7  Land economics Has a three fold context. This framework involves the impacts that they have on private and public decisions to land use. Together they set the limits concerning what individuals, groups and govts can accomplish in their dev. Utilization and conservation of land resources. 1. Technological and economic considerations 2. Physical and Biological factors 3. Institutional Arrangements 8  The Economic Environment and Technological framework Here the feasibility not capability is key. Technical knowledge allows efficient use of resources New scientific and technological dev. Have major impacts on economic feasibility and make projects and policies practicable (which were not). Certain changes in product prices, consumer demands; production responses to combination of inputs; & raw materials, transportation and marketing costs may have similar effects – all important if production is to be economically feasible? There are also social welfare considerations in this framework. It looks at availability of land and other resources, their allocation bet. Potential users, distribution of production benefits and incomes among operators, workers and others. This reflects the sale prices or properties, rental sales, land use patterns and the mix of market participants in the neighbourhoods. 9 The Economic Environment and Technological framework 10  Economic contd. The graph depicts the tradeoff of location & accessibility for retail facilities in the city. Retail uses do not attach the same importance to central city location as do office space users. The competition for land uses is reflected at A. where the dominant use shifts to retail activities. 11  Economic cont. Financing terms and practices are also important in the understanding of an area’s economic environment. So are rent delinquencies and availability of property finance Property maintenance is both a function of the economic environment and the physical one. 12  The physical and biological environment/framework Concerned with the natural environment man lives in and the nature and characteristics of the various resources he must work with. There is need to protect this environment, in pursuit of sustainable development. What is sustainable development? 13  What is sustainable development? Means development that effectively incorporates economic, social, political, conservation and resources management factors in decision making for dev. It involves meeting the needs of the present without compromising the ability of future generations to meet their needs. 14  The physical and biological environment/framework Economic growth provides the conditions in which protection of the environment can be best achieved and environmental protection, in balance with other human goals, is necessary to achieve growth that is sustainable. 15  The physical and biological environment/framework This environment is characterised by both natural and artificial features. Natural features include: the topography, vegetation, ground cover and the atmosphere, soils and their condition, bodies of water and any other natural phenomena. The artificial features are buildings and any other man made feature. 16  Institutional Framework Concerned with the role cultural environments and forces of social and collective action play in influencing the behaviour of people as individual and as members of families, groups and communities. To be workable, land use programs and policies must pass the test of institutional acceptability. Must also constitutional and legal and recognise the significance of property rights. Must be politically and culturally 17  Institutional Framework The role of man’s cultural environment and the forces of social and collective action play in influencing his behaviour as an individual and as a member of his family. To study this, information on the land use potential of an area must be provided. Collectively the lifestyle of the residents direct the quantity, quality and efficiency of the potential land use associations in an area. This environment is constantly changing. 18  Three Frameworks The three frameworks are interlinked and work together. But each framework has its own special impacts on land use programs and policies and each can be examined separately. 19  Three Frameworks Programs and policies must be physically and biologically possible, technically and economically feasible and institutionally acceptable if they are to work out in practice. Land economists must respect the constraints posed by each of the three frameworks if the programs are to be successful. 20  Land Economics and real estate Can be divided into: Rural land economics and real estate or urban land economics Rural land economics is considered a phase of agricultural economics (looks at issues on land and water utilization, land settlement and dev., reclamation, land classification, property valuation, land tenure, resource conservation, taxation problems, land use planning, zoning and land use controls and public land management. Real estate or urban land economists look at the following: 1. Problems of housing 21  Land economics and real estate 2. Urban land development and redevelopment. 3. Industrial and commercial location 4. Urban real estate appraisal 5. Finance and marketing 22  Rural Land What is our rural land for and what do we expect from it? Should farmers be diversifying into energy crops or concentrating on feeding the nation?  Definition of Rural Rural areas are large and isolated areas of an open country with low population density. The terms "countryside" and "rural areas" are not synonyms: a "countryside" refers to rural areas that are open. Forest, wetlands, and other areas with a low population density are not a countryside.  Definition of Rural Land Rural land is land that is used wholly and exclusively for carrying on a substantial business of primary production. The definition of primary production refers to production resulting directly from the cultivation of land; animal husbandry/farming; horticulture; fishing; forestry; viticulture or dairy farming. Primary production for the purpose of the rural land definition does not include vacant land (even if zoned ‘rural’), hobby farms, ‘rural residential’ blocks or land used for mining.  Definition of Land 1. The different perspectives or perceptions of land Land is a term with many meanings: – physical geographers see it as relating to the landscape – economists see land as a resource – lawyers see land as a volume of legally definable space extending from the centre of the earth to the infinity of the sky Examples of the diversity of definitions available: Dale & McLaughlin (1988): Land is "the surface of the earth, the materials beneath, the air above and all things fixed to the soil." MacNeill (1975): Land is "... the air we breathe; the water we drink and use for recreation; the land we cultivate, the cities we flock to in growing numbers; and the wilderness we seek to enjoy today and to preserve for future generations".  Land (a) Land as space fixed in quantity includes entire surface of earth and also cubic space: thus air space, sub-surface space and associated minerals cannot be destroyed or increased concept of land unit as region or spatial entity, ranging from a single "parcel" to suburb to country to whole planet  Land (b) Land as spiritual attachment For some communities, land is: – spiritual nature of land – ancestral spirits or deity that possesses itself and owns everybody and every thing – something to which people belong rather than something that people own.  Land (c) Land as community (territoriality) territoriality is an expression of power group of individuals living in a particular area, with common interests associated with their individual and collective good: "home"; "nation" natural ecological community to which individuals have special rights and responsibilities (d) Land as geographic location/situation  Land (e) Land as a factor of production (resource) in economics – Land as capital – in classical economics, land is a durable "free gift of nature" and capital is expendable past savings and stored up production of humans – sometimes land is regarded as capital in itself because of ability to raise capital with land as collateral. (g) Land as environment – Increasingly, we see land in its natural state as having intrinsic value e.g. Agenda 21 – Natural environment – Built environment  Land (h) Land as a resource as a means of support or provision – means of support, source of wealth and revenue associated with earth’s surface, beneath and above, includes mineral deposits, forests, water, fish, sunlight, rainfall, temperature changes also includes human improvements attached to the earth (i) Land as Property property: a right or enforceable claim created by custom, convention or law vested in individuals or groups positive rights: rights to exclude others - private property negative rights: rights not to be excluded - common property state, community, society creates rights - explicitly and implicitly vests them in individuals and groups; some rights reserved by state or community to enforce those rights. real estate private property vs common property  Characteristics of Rural land A classification system of eleven characteristics has been developed for reading a rural landscape and for understanding the natural and cultural forces that have shaped it. Landscape characteristics are the tangible evidence of the activities and habits of the people who occupied, developed, used, and shaped the land to serve human needs; they may reflect the beliefs, attitudes, traditions, and values of these people.  Characteristics of rural land The first four characteristics are processes that have been instrumental in shaping the land, such as the response of farmers to fertile soils. The remaining seven are physical components that are evident on the land, such as barns or orchards. Many, but not all, rural properties contain all eleven characteristics. When historic processes are linked to existing components, the rural landscape can be viewed as a unified whole.  Characteristics of rural land contd. This classification system is a tool for gathering and organizing information. First of all, it is used to develop historic contexts for rural areas. Second, the system is used to identify and evaluate the significant properties of a rural area or to determine the eligibility of a particular rural landscape. Through field survey and historic research, characteristics are associated with specific features, such as field patterns or roadways, and provide an understanding of an area or property's historic land uses and physical evolution.  Characteristics contd. Third, as information about existing characteristics is related to the historic contexts for a geographical area, assessments of significance, integrity, and boundaries can be made for specific properties.  Characteristics contd. Finally, the classification system provides a format for documenting rural properties on National Register forms. It can be used to organize the description and statement of significance for a specific rural property on the registration form. It is also useful for organizing information about rural historic contexts and property types on the multiple property documentation form.  Divided into processes and components The first four characteristics are processes that have been instrumental in shaping the land, such as the response of farmers to fertile soils. The remaining seven are physical components that are evident on the land, such as barns or orchards.  Processes - 1. Land Uses and Activities: Land uses are the major human forces that shape and organize rural communities. Human activities, such as farming, mining, ranching, recreation, social events, commerce, or industry, have left an imprint on the landscape. An examination of changing and continuing land uses may lead to a general understanding of how people have interacted with their environment and provide clues about the kinds of physical features and historic properties that should be present.  Processes - Land Uses and Activities contd. Topographic variations, availability of transportation, the abundance or scarcity of natural resources (especially water), cultural traditions, and economic factors influenced the ways people use the land. Changing land uses may have resulted from improved technology, exhausted soils or mineral deposits, climatic changes, and new economic conditions, as well as previous successes or failures. Activities visible today may reflect traditional practices or be innovative, yet compatible, adaptations of historic ones.  Processes - 2. Patterns of Spatial Organization: The organization of land on a large scale depends on the relationship among major physical components, predominant landforms, and natural features. Politics, economics, and technology, as well as the natural environment, have influenced the organization of communities by determining settlement patterns, proximity to markets, and the availability of transportation.  Processes - 2. Patterns of Spatial Organization Contd. Organization is reflected in road systems, field patterns, distance between farmsteads, proximity to water sources, and orientation of structures to sun and wind. The distribution of towns every seven miles along a railroad corridor; and the division of land in for example, by the French long-lot system, to ensure that every parcel has river frontage.  Processes - 2. Patterns of Spatial Organization Contd. Large-scale patterns characterizing the settlement and early history of a rural area may remain constant, while individual features, such as buildings and vegetation, change over time. Changes in technology, for example, may have altered plowing practices, although the location of plowed fields, and, therefore, the overall historic pattern may remain the same.  Processes - 3. Response to the Natural Environment: Major natural features, such as mountains, prairies, rivers, lakes, forests, and grasslands, influenced both the location and organization of rural communities. Climate, similarly, influenced the siting of buildings, construction materials, and the location of clusters of buildings and structures. Traditions in land use, construction methods, and social customs commonly evolved as people responded to the physiography and ecological systems of the area where they  Processes - 3. Response to the Natural Environment contd. Early settlements frequently depended upon available natural resources, such as water for transportation, irrigation, or mechanical power. Mineral or soil deposits, likewise, determined the suitability of a region for particular activities. Available materials, such as stone or wood, commonly influenced the construction of houses, barns, fences, bridges, roads, and community buildings.  Processes 4. Cultural Traditions: Cultural traditions affect the ways that land is used, occupied, and shaped. Religious beliefs, social customs, ethnic identity, and trades and skills may be evident today in both physical features and uses of the land. Ethnic customs, predating the origins of a community, were often transmitted by early settlers and perpetuated by successive generations. Others originated during a community's early development and evolution. Cultural groups have interacted with the natural environment, manipulating and perhaps altering it, and sometimes modifying their traditions in response to it.  Processes - 4. Cultural Traditions contd: Cultural traditions determined the structure of communities by influencing the diversity of buildings, location of roads and village centers, and ways the land was worked. Social customs dictated the crops planted or livestock raised. Traditional building forms, methods of construction, stylistic finishes, and functional solutions evolved in the work of local artisans.  COMPONENTS - 5. Circulation Networks: Circulation networks are systems for transporting people, goods, and raw materials from one point to another. They range in scale from livestock trails and footpaths, to roads, canals, major highways, and even airstrips. Some, such as farm or lumbering roads, internally served a rural community, while others, such as railroads and waterways, connected it to the surrounding region.  Components - 6. Boundary Demarcations: Boundary demarcations delineate areas of ownership and land use, such as an entire farmstead or open range. They also separate smaller areas having special functions, such as a fenced field or enclosed corral. Fences, walls, tree lines, hedge rows, drainage or irrigation ditches, roadways, creeks, and rivers commonly marked historic boundaries. Components - 7. Vegetation Related to Land Use: Various types of vegetation bear a direct relationship to long-established patterns of land use. Vegetation includes not only crops, trees, or shrubs planted for agricultural and ornamental purposes, but also trees that have grown up incidentally along fence lines, beside roads, or in abandoned fields. Vegetation may include indigenous, naturalized, and introduced species. Components - 7. Vegetation Related to Land Use contd. While many features change over time, vegetation is, perhaps, the most dynamic. It grows and changes with time, whether or not people care for it. Certain functional or ornamental plantings, such as wheat may be evident only during selected seasons. Each species has a unique pattern of growth and life span, making the presence of historic specimens questionable or unlikely in many cases. Current vegetation may differ from historic vegetation, suggesting past uses of the land. Components - 8. Buildings, Structures, and Objects: Various types of buildings, structures, and objects serve human needs related to the occupation and use of the land. Their function, materials, date, condition, construction methods, and location reflect the historic activities, customs, tastes, and skills of the people who built and used them.  Components - 8. Buildings, Structures, and Objects contd. Buildings--designed to shelter human activity-- include residences, schools, churches, outbuildings, barns, stores, community halls, and train depots. Structures--designed for functions other than shelter--include dams, canals, systems of fencing, systems of irrigation, tunnels, mining shafts, grain elevators, silos, bridges, earthworks, ships, and highways. Objects--relatively small but important stationary or movable constructions--include markers and monuments, small boats, machinery, and equipment.  Components - 8. Buildings, Structures, and Objects contd Rural buildings and structures often exhibit patterns of vernacular design that may be common in their region or unique to their community. Residences may suggest family size and relationships, population densities, and economic fluctuations. The repeated use of methods, forms, and materials of construction may indicate successful solutions to building needs or demonstrate the unique skills, workmanship, or talent of a local artisan.  Components - 9. Clusters Groupings of buildings, fences, and other features, as seen in a farmstead, ranch, or mining complex, result from function, social tradition, climate, or other influences, cultural or natural. The arrangement of clusters may reveal information about historical and continuing activities, as well as the impact of varying technologies and the preferences of particular generations.  Components – 9 clusters contd. The repetition of similar clusters throughout a landscape may indicate vernacular patterns of siting, spatial organization, and land use. Also, the location of clusters, such as the market towns that emerged at the crossroads of early highways, may reflect broad patterns of a region's cultural geography.  Components 10. Archeological Sites: The sites of prehistoric or historic activities or occupation, may be marked by foundations, ruins, changes in vegetation, and surface remains. They may provide valuable information about the ways the land has been used, patterns of social history, or the methods and extent of activities such as shipping, milling, lumbering, or quarrying.  Components 10. Archeological Sites contd. The ruins of mills, charcoal kilns, canals, outbuildings, piers, quarries, and mines commonly indicate previous uses of the land. Changes in vegetation may indicate abandoned roadways, homesites, and fields. The spatial distribution of features, surface disturbances, subsurface remains, patterns of soil erosion and deposition, and soil composition may also yield information about the evolution and past uses of the land.  Components - 11. Small-scale elements: Small-scale elements, such as a foot bridge or road sign, add to the historic setting of a rural landscape. These features may be characteristic of a region and occur repeatedly throughout an area, such as limestone fence posts. While most small-scale elements are long-lasting, some, such as bales of hay, are temporal or seasonal. Collectively, they often form larger components, such as circulation networks or boundary demarcations. Small-scale elements also include minor remnants-- such as canal stones, road traces, mill stones, individual fruit trees, abandoned machinery, or fence posts--that mark the location of historic activities, but lack significance or integrity as archeological sites.  Rural Land Use The utility of rural land lies in its ability and capability to produce a crop or crops, etc Rural land can also be divided into: Agricultural land uses Mineral lands Forestlands  Rural Land Use And is it reasonable to expect the rural land owners to be competitive food businesses as well as managers and guardians of wildlife and landscapes? When floods overwhelm urban areas should that just be a problem for the individuals and businesses affected? Or should country dwellers be prepared to sacrifice rural land for flood storage?  Rural Land Use The increasing demand for rural land and its natural resources is creating competition and conflicts. Many interested parties, including farmers, nature conservationists, rural residents and tourists, compete for the same space. Especially in densely populated areas, agriculture, recreation, urban and suburban growth and infrastructure development exert a constant pressure on rural areas.  Rural Land Use Because land is a finite resource, spatial policies which are formulated and implemented to increase the area allocated to one use imply a decrease in land available for other uses. As a result, at many locations, multi- purpose land use is becoming increasingly important. This notion of multi-purpose land use is reflected in the term multifunctionality.  Land Use Capacity Closely associated with the concept of rent. Involves the relative ability of a given unit of land resource to produce a surplus of returns and/or satisfaction above the costs of utilization Measures productivity potential of units of land utilized for a given use at a given time with given technology and production conditions. It has two concepts: 1. Accessibility  accessibility This involves the convenience, time and transport cost savings associated with specific locations with respect to markets, shipping facilities and other resources. It is also concerned with optimizing transportation and communication costs and time-distance considerations  Resource quality This involves the relative ability of a land resource to produce desired products, returns or satisfactions. For agricultural land this is viewed in terms of native fertility in combination with the ability to respond to fertilizer inputs. Quality may reflect climate advantages, it may also involve aesthetic considerations such as scenery, presence of trees or water attractions, nearness to parks or open space and access to facilities like educational institutions etc.  Resource quality In urban areas, this maybe reflected in items such as functional area planning, neighbourhood attractiveness, architectural styles of buildings etc In land economics, the land use concept is used to distinguish between the comparative abilities of different units of land resources to provide net return and other satisfactions. The concept involves all those factors that affect the ability of a unit of land resource to produce a net return as compared with some other unit  The Concept of Highest and Best Use Defined as the reasonably probable and legal use of vacant or improved property which is physically possible, appropriately supported, financially feasible and that results in highest value. Land is concerned at its highest and best use when it is used for that purpose for which it has the highest comparative advantage relative to other uses. Highest and best Use contd. The highest and best use of any particular site is often subject to change. It can shift changes in the quality of the land resource, changes in technology and changes in demand. It may be affected by zoning laws and other public policies  Highest and best use In many cases land resources earn higher return when used for commercial or industrial purposes. These uses are able to outbid other uses for almost any site. Residential land uses are the next priority, the cropland, pasture and grazing and forests. Highest and best use contd. The highest value land is at the centre of the cities, while lower value land are used for residential, cropland, grazing, forestry etc. Variations will also occur where some land uses seek low cost land. There is also overlapping among land uses. There is also a need to differentiate between market place or economic and social concepts of highest and best use. Highest and best use contd. Economic highest and best use is a measureable concept with numerous applications in the real world. Social highest and best need is a less quantifiable concept and reflects the varying aspirations, goals and value judgements of different individuals and groups.  Land Evaluation This concerns these opportunities and limitations and attempts to translate the plentiful information now being accumulated about land into a form usable practically, by farmers, engineers asking questions “can I grow crops here” or “can I lay a pipe here”.  Land evaluation Direct evaluation Indirect evaluation Stages in Indirect evaluation  Land evaluation There are 2 principles that dictate rational land use planning decisions: a) Land should be used for the purpose for which it is well suited b) Land of high value for an existing land use should be protected against changes which are difficult to reverse. These principles are often in conflict so land evaluation is sometimes used for negative purposes of preventing non- agricultural development on land of high agricultural quality.  Land economics Why study land economics? A better understanding of the functioning of the land markets will do several things: a) Contribute to a more effective govt policy with respect to the urbanisation process b) Will make a better basis for financial spending with respect to land and property by public and  Land economics c) Helps improve the quality of the built environment  Land As a factor of production Scarcity Demand and supply and elasticity Market for land  Land As a factor of production Land is an economic good that has special characteristics; Land as a factor of production Land is the passive factor of production. Land simply exists. The four factors of production are referred to as inputs in the production process. Land is the most obvious input and its description has already been given.  SCARCITY In order an economic problem to exist, the relevant good or resource must be scarce. If a good or resource is not scarce, such as water in a rain forest, there is not need for economizing and thus no economic allocation. Alternatively, the price of a good or resource that was not scarce would be zero. Anything that is both desired and scarce will command a price. This price will be set by some type of economic forces. Usually these forces are market forces -- supply and demand.  Scarcity and Demand Demand combined with scarcity will result in a price. Higher prices discourages buyers while encouraging suppliers to supply more of whatever it is, regard­- less of societal pronouncements to the contrary. Obviously, lower prices discourage supply while increasing people’s willing­ness to buy the product.  Elasticity This introduces the concept of elasticity. Will buyers pay almost any price for something? If so, their demand is inelas­tic, meaning that they will tend to buy the same or nearly the same quantity of whatever it is, regardless of the price.  Elasticity The opposite of inelastic is elastic. Demand is elastic when even small changes in prices result is large changes in the quantity sold.  The market for land Nevertheless, land can be put to a variety of uses. Some of these uses may be economic and some non-economic. Moreover, some of these uses involve modifying the nature of the land while others do not. At issue is the allocation of land among competing uses. A given parcel of land may be used for agriculture -- to raise food and fiber to meet the needs of others for sustenance and clothing. That same parcel may be used as a site for homes, or a shopping center.  The market for land Or, it could be left in a natural state and used as habitat for natural species, both flora and fauna. The decision to allocate land among these and other uses is made through the market place by demanding and supplying land.   Demand for land THE LAW OF DEMAND - Price and quantity demanded are in­versely related. Or, as price increases less quantity will be demanded. Land can substituted by multi-storey buildings  THE SUPPLY OF LAND THE LAW OF SUPPLY. Quantity demanded and price are directly related. Or, alternatively, at increasing prices an increasing quantity will be supplied by seller in the marketplace. Figure x shows the typical rendition of a supply function. Supply of land  Supply of land The Law of Supply is, of course, a genera­- liza­tion. Its primary refe­rence is to a good or serv­- ice that is the result of a combination of productive resources (land, labor, capital and entrepreneurship) such as automobiles. A good that cannot be produced, such as land, cannot be increased in supply as such.  Supply of Land There are numerous categories of land that are, in fact, separate goods. Farmland residen­tial land, commercial or industrial land. However, while these categories of land are differentiable, they are limited sub­stitutes.  The supply of land THE QUANTITY OF LAND. The total number of acres of land -- the quantity of land -- is fixed. The Earth has a finite quan­tity of land, 35.7 billion acres, as does the United States, 2.3 billion acres, Florida, 34 million acres, or the intersec­- tion of 5th Street and Main, 1 acre. Kenya?  The supply of land Man can marginally affect the quantity of land through such activities as fill­ing submerged land, but this is very marginal when the total quantity of land is considered. However, the number of acres of land that exist misses the point in dis­- cussion of the supply of land.  The supply of land The Law of Supply holds that increasing quantities of any good, including land, will be offered for sale (or lease) at higher prices. This would mean that as land prices increased, increasing quan­tities would be offered. But also the serve for substitutes will increase. Of course, the quantity offered cannot exceed the total quantity that exists.  The supply of land Land, unlike most goods, is durable And is not removed from the marketplace when it is purchased or put to a particular use. Thus, land remains in inventory at all times. What changes when land is sold or otherwise committed to some particular use is the price that would be required for the owner to offer the property for sale.  The supply of land The issue in the supply of land is not the total quantity of land available but rather the quantity of land available that can perform particular services.  Economic Characteristics Supply of land is considered fixed or completely inelastic to change in the long run. Even within the short run land can be transfered within limit from one use to another e.g residential to commercial. This is occupational mobility of land. Although land is fixed physical it is capable of assuming alternative uses and physical limitation of land supply tend to have a limited impact on the economic. Supply can also be enhanced using technology e.g. reclamation, highrises  Physical immobility/geographical fixing Land is geographically fixed in location – services provided on land must be utilized on site. Location is crucial in determining land values because shortage of supply in one place cannot be made up for by surplus elsewhere. The general level of values will be governed by the locational characteristics of the micro-market where the land is situated.  Permanent/indestructible Land is permanent and relatively indestructible  Derived demand Land is not required for its own sake but for the production of other goods and services. If demand for goods and services go up then demand for land goes up and vice versa Overall demand for land is affected by several factors: 1. Population changes 2. Changes in tastes and preferences 3. Availability of services – e.g access roads, water, electricity etc  Derived demand contd. Factors affecting demand contd... 4. availability of facilities 5. Security of tenure  Market imperfection Land market is far from perfect. It is subject to sluggish reactions which leads to a constant state of imbalance. Causes of imperfection: 1. No central market 2. Time lag 3. Inability to adapt to changes 4. Land transactions are protracted and costly 5. Submarkets – commercial market, residential, industrial, agricultural markets  Sub markets contd. There is a interaction between them – for example if the price for residential property increases it will attract more agricultural land to change to residential. (some level of substitution) However, the supply of agricultural land would be decreased in exactly the same amount as the supply of residential land was increased. Within the submarkets a definite submarket will be classified by the type of property e.g. Housing market, vacant land market, office property market, shops, rental as opposed to sales etc.  Sub markets and substitutablitily or LACK OF SUBSTITUT­ABILITY Individual parcels of land have certain differences. Such differenc­es may be in the form of fertility (productivity) which would make one site better than another for a certain activity. Also, sites have different locations and such different locations can make one site better than another. Lack of fertility or location will reduce the ability of one site to perform the services of another until the alternate site cannot perform that service. At this point, the alternative site is no longer a substitute and does not enter into questions of supply. The market will capture such differences in fertility, productivity and location in the evaluation land. Of course, this valuation is done by buyers demanding and sellers supplying land.  Large capital outlay In comparison with other things land requires a large capital outlay.  Low in Liquidity Land is low in liquidity and difficult to sell within a short notice  Capital appreciation Land appreciates in price under normal circumstances.  Pride of ownership Property is visible, tangible and permanent and accords a measure of social prestige and standing in society. Ownership of land constitutes a symbol of status and a corporate image, which gives its owner prestige.  Government control The government has power to intervene in the use of your land  Taxation Land is taxed. Name the taxes paid on land. This will affected the land market as well.  Eminent domain The power that the government reserves the power to take over your property compulsorily.  Demand and Supply The interac­tion of buyers and sellers will result in market equilibrium where the quality of the item offered is equal to the quantity buyers wish to take. Supply and Demand  Supply and demand Land, unlike most goods, has no cost of production as such. In supplying land, sellers are not looking at their cost of production in determining how much land to offer at various prices. Rather, sellers are assessing the worth of their owner­ship to them. Such worth is then contrasted with the prevailing price in order as sellers determine what quantity of land they will supply at the prevailing price.  Supply and Demand The worth of land, as distinct from its prevailing (market) price can reflect a difference between value in use and value in exchange. Value in use would represent the worth of land to an owner, either current or potential. The value in use – is thus the net present value (NPV) of a cash flow that an asset generates for a specific use If the seller’s value in use exceeded the value in exchange, the seller would not offer the property for sale. The interesting question then is, what establishes value in use?  Value in Use There are two primary (economic) matters in establish­ing value in use. First, the economic return to the owner from the existing use. Thus a parcel currently providing an economic return to the landowner and this return is a factor in establishing value in use.  Value in Use The second factor is the expecta­tions about the future insofar as the property is con­cerned. So, if the current owner was leasing the property to a farmer and believed that the property would soon attain inter-state highway frontage, the value in use would be greatly in excess of the agricultural value of the parcel. Value in use can be influenced by non-economic factors. For example, a landowner might consider that he must discontinue his farm operation if the farm were to be sold for residential development. Moreover, affection for the land can also influence value in use.  Value in exchange Value in exchange can be easily defined as the price or other consideration received from transferring the land to another. The usual is to express this consideration in monetary terms but it is possible that other forms of consid­eration could be offered. The point is that the value in ex­change is the betterment to the current owner (seller) from transferring ownership.  Conversion The quantity of land is fixed. However, the quantity of land available for a speci­fied purpose, such as growing wheat, may be changed. It may be chan­ged by converting land from another use, such as grazing cattle or growing corn, or by improving land so that it is suitable for raising wheat. Both of these actions would increase the supply of land avail­able for growing wheat but without affecting the total supply of land.  Reservation Demand The supply of land that will be available at any given point in time will be depen­dent upon sellers – pre­- sent owners – willingness to part with their land. To “demand” their land, buyers must outbid the present owners in order for there to be an exchange and an effective supply of land. This is referred to as the seller’s reservation demand.  Reservation Demand This is a concept borrowed from auctions where it is common for owners to place a reservation or minimum price before then item will be sold. Once that reserva­tion has been met, the normal forces of supply and demand will set prices. Reservation price above demand  Reservation Demand The Figure shows a situation where the reservation demand is $5. This means that no units will be sold below $5 regardless of market forces. Market Price below reservation  Reservation Demand The Figure shows reser­vation demand af­fecting the market. Sellers’ rese­rvations have raised prices from $6 to $9, thus reduc­ing the quantity of land sold from 6 to 3. What happened to the 3 units of unsold land?  Reservation Demand The unsold land becomes what we commonly know of as speculative land – land held in the present in antici­pation of receiving higher prices in the future. Most urban areas are filled with such parcels. These are the cow pastures near or even next to new developments. Seller’s reservation demand is set primarily by three factors – a. The existing price of land b. The sellers anticipations/expectations about future prices for the land, and c. The seller’s costs of withholding the land – taxes, foregone interest, etc.  The Theory of rent Adam Smith (1723-1790) – formal beginning of the classical school of economics. He wrote book Wealth of Nations. He argued that rent, wages and profits are elements of both income and price of the commodity produced.  Adam Smith He presented the first differentiated rent theory that eventually became part of the classical economic doctrine, although all the theories on rent are incomplete. He said that once a landlord appeared on the scene, the labourer or worker must give up to the landlord a portion of what he produces or collects The price of this portion constitutes the rent of land.  Adam Smith He also said that the land of a nation has all been appropriated and the owners demand a rent even for its natural produce and the labourer pays the landlord a licence to gather the fruits of the earth. Landlord charges an amount and leaves the farmer only enough to cover costs and ordinary profits. Smith also described rent as an opportunity cost  Adam Smith He theorized on wages and profits and interest. John Stuart Mill (1806-1873) John Stuart Mill (1806-1873) Regarded as the synthesizer of the school. Addressed issue of value as a social philosopher Wrote a book, Principles of Political economy Discussed factors that determine rent, wages, profits and interest. John Stuart Mill (1806-1873) Rent according to Mill: Is the effect of a monopoly in the ownership of land. Reason why landowners require rent for their land is that land is a limited commodity in quality and quantity which many want and which no one can obtain but from them. John Stuart Mill (1806-1873) He saw land ranges from highly productive to poor land, Rent of land would consist of excess of its returns above the return of the worst land in cultivation or the capital employed in the least advantageous circumstance He also said that the interest of the landlord is decidedly hostile to the sudden or general introduction of agricultural improvements. John Stuart Mill (1806-1873) He also discussed wages, profits and interests  Henry George 1839-1897 An American Economist. Placed social and political emphasis on issues distinctly economic in character. Wrote a book, Progress and poverty, dealt on land and land policy Differed with other classical economists on how rent should be determined  Henry George 1839-1897 On rent, says it the excess product yielded by better grades of land over those grades which yield no surplus over cost. It accrues to the owner of the land, Who as owner is in a monopoly position to demand surplus product which is unearned increment Owner may contribute nothing to the productivity, but enjoys the exclusive return simply because he is the owner of the land  Henry George 1839-1897 Rent which accrues to private ownership is the result of all factors which provide the demand for the product The owner collects the rent and enjoys his monopoly return Henry George finds no justification for private ownership of land which is a free gift of nature.  Henry George 1839-1897 Rent should therefore be taken away from the private owners and given to the community which really earned it. Since this private ownership is the cause of all economic and social trouble He provided taking away the rent through ‘Single Tax’ (full annual rental value) thus leaving the owner with only titles  Alfred Marshall He began the era of neoclassical economists David Ricardo Von Thunen William Alonso  Other Theoritical Perspectives Neo-classical approaches Von Thunen, Walter Christaller, Weber Behavioural Approaches Structuralist Approaches  The Theory of Rent Dates back to 18th century R.J. Turgot and Francois Quesnay (french Economists) mainly Said: 1. An natural order of economic activity exists not to interfered with by man 2. Govt’s role is to uphold this order and preserve property 3. Agriculture was the only source of wealth and only productive sector  The theory of rent 4. Rent – a payment for the use of agricultural land 5. Cities viewed as playing a subordinate economic role and were parasitic on the toil of workers on the agricultural production process.  Theory of rent Rent – refers to periodic payment for factors of production which have an inelastic supply curve.  David Ricardo – 1772-1823 The Ricardian Model of land rent. Ricardo credited with earliest explanation of the nature of rent, which approximates the modern economic definition of the rent concept. Ricardo active during Napoleonic wars and Several things happening:  Ricardian Theory of Rent Land rents increased An increase in demand for food stuffs Rent featured prominently in economic thought Conclusion: Landlord was profiting from the misfortunes of society by: 1. High food prices was as a result of high rents charged by these aristocratic landowners 2. Tenant farmers raised the food prices to be able to survive this cruel economic environment.  Ricardo Loss of popularity of land owning aristocracy Ricardo was antagonistic to this land aristocracy, though later he became a substantial land owner.  David Ricardo Defined rent as a payment for the original and indestructible powers of the soil. He gave several reasons as to the high rents He also concluded that factors of production are not demanded for their own sake but because of the goods they are used to produce.  David Ricardo contd... Land scramble bounty  David Ricardo Ricardian Theory of rent, though Ricardo not the originator. We will discuss his assumptions and his model next.  Ricardo’s assumptions 1. Land was for one use only – agriculture 2. Land was of different quality and arranged unit by unit from the poorest to the richest quality and vice versa 3. All factors of production used in conjunction with this land for crop production were homogenous in quality and application except land itself 4. The supply of land was limited and finite in this economy for each qualitative category.  Ricardo This meant that good land would be cultivated first. As demand increased all good land would be exhausted Poor and poorer land would be cultivated in succession if demand continued to rise until there was no longer cultivable land. Land yielding no produce not entitled to rent  Ricardo Amount of rent payable increased as land capability increased Richer land commanded higher rent and the richest land got the highest rent in this economy. Ricardo contd.  David Ricardo The figure illustrates the rent model where the horizontal axis rep. all land arranged qualitatively from O to N. The Nth Hectare manages to produce only the amount that would be able to pay for the cost of factors of production that are used together with land, no surplus profit. All other hectares to the left of N can pay for the cost of other accompanying factors OC and in addition earn a surplus, amount depends on the quality of land.  Ricardo Best quality land earns the maximum rent or surplus payable for the land expressed as CD. All land will earn more money if the demand for wheat increases, if prices of other factors remain constant. Consequently previously submerged land will earn some surplus after other factors are paid for. This pushes the margin of cultivation to other land of inferior quality than the Nth Hectare to (N+1)th hectare.  Ricardo Increased demand pushes up rent for land through the extensive margin of cultivation.  Von Thunen - 1783 His theory also known as theory of location. Wrote the book ‘Isolated State’ 1826 Explains why agricultural activities vary with distance. 2 objectives: 1. to show that intensive production of a particular crop will decline with distance from the market. 2. Land use will vary with distance from the market.  Von Thunen Based on imaginary landscape over which certain specified conditions or constants prevail: He also made assumptions:  Von Thunen A single market that occupies a point in space The market center is isolated in isotropic plain All surplus commodities sold in this market Area surrounding the market is physically homogeneous Assumes a single mode of transportation from the hinterland – ox cart  Von Thunen - Assumptions All areas within any distance from the market have equal accessibility to the market Transportation cost were assumed equal by unit distance travelled in all directions, total cost varies with distance from the market and borne directly by farmers A uniform distribution of farmers over space  Rent Bid Function The model that comes out is a rent bid function. It shows the ability of the farmer to bid for land at all distances and in all directions along the market. Rent Bid function for one crop  Rent bid function Graph shows the return conditions by farmers of one single crop D to D3 shows returns accruing to this farmer with respect to distance from the market D3 defines the outermost margin of cultivation for this single crop D is the center of the market  Rent bid function Farmers can afford to bid for land nearest to the market depending on how much rent income they can earn Net income is a function of transportation cost after paying off all factors of production including transport costs. The net revenue reflects the economic rent which is payment due to land  Rent bid function While in Ricardo the fertility of soil is the main factor/variable determining the amount of economic rent, in VON THUNEN, distance is. The rent bid function is also known as the rent gradient. Rent Bid function for 2 crops  Rent bid function for two crops The steeper the gradient the more one is likely to located near the center Different crops have different technical production requirements and prices will differ, so will transport costs The price of the crop with the rent bid function CD will be high in the market than that of AB Rent Bid function for 2 crops The farmer CD commands greater price when produced at the market place The diagram shows that crop AB is less affected by distance than crop CD i.e. AB has a gentler slope. Farmers of CD are affected considerably by distance from the market. The farmer pays more per km for transporting his goods to the market place, so returns are initially higher than that of AB, but erode faster than AB as he moves further away. CDs rent bid function is steeper and its outward margin of cultivation is nearer than AB lying at D.  Rent bid function for two crops Beyond L AB has higher returns due to less transport costs exhibited by a flatter rent bid function AB is able to outbid CD beyond L. Land occupation around the mkt place O is determined by the bidding power pf each producer. All land around O up to L can then be occupied by CD and from L upwards can be occupied by AB Rent bid function for 2 crops Rent bid function AB AB m CD Rent bid function for 2 crops The diagram gives a spatial representation M – is the market place  Rent bid function for more than 2 crops Rent bid function  Rent bid function Rent bid function L2-L3 L1-L2 L-L1 O-L M  Rent bid function M – the market place O to L, L1 etc, Land use zones  Rent/Value gradient The rent gradient forms the rent value gradient The rent value is the present value of a stream of income expected from the land or expected as net yield from the produce of the land Agricultural land value will therefore be highest near the market center and declines steadily away from it. Von Thunen identified 7 zones. Rent/Value gradient  Land Use Zones Zone 1 – Dairy and horticulture Zone 2- Lumber products (bulky) Zone 3 – wheat Zone 4- Barley and rye Zone 5 – Ranching Zone 6 – Marginal land Zone 7 – Desert surrounding isolated state  Land Use zones Von Thunen later modified his model: 1. Introduced a navigable river 2. Introduced a smaller city or market place that competed with the original market place. This modification produced a more complex land use pattern.  Modified Von Thunen’s Model He relaxed assumptions: 1. By introducing different types of farmers each using a different kind of crop from the other – hence the different rent bid functions and the concentric zonation of land uses around the market (multi-crop bid function) 2. Had now a bi-modal transportation system – which was cheaper and faster (water transportation) 3. Influence of a subsidiary market  Modifying factors The above modifying factors produced a more complex land use pattern.  Application of the Von Thunen Model His model produces a pattern of concentric zones, each zone specializing in particular types of agricultural produce. Substitute general accessibility for transport costs we can apply the Model to urban areas and it explains: 1. the pattern of land use of the urban area 2. The fall in land values from the center to the periphery 3. How urban areas grow, since each zone tends to expand into the next as population and economic growth occur. Any current pattern, however, is continually modified through changes in:  application 1. The size and composition of the city’s population 2. The level and distribution of income 3. Technology, such dev. Of road transport and IT 4. The social and economic organisation of the community life 5. Govt policy 6. The growth of the urban area.  Application In response to such factors land use alters by:  Urban area zones Certain broad but irregular concentric zones are distinguished: 1. CBD 2. The Zone of transition 3. The suburban 4. Rural Urban fringe.  Von Thunen and Ricardian Models Compared As already seen, Ricardo’s model highlighted that rent differed because of differences in land fertility. Von Thunen’s model, the influence of transportation costs is seen as the main determinant of the spatial rental differences:  Von Thunen and Ricardo Question arises as to: 1. Whether both approaches are the same 2. Or whether they are mutually in opposition Both approaches owe their origins to two schools of thought prevailing in Europe during the 19th Century:  Von Thunen and Ricardo Compared Ricardo’s ideas were incorporated into classical and neoclassical economic thought in Britain at the time following the publication of his book on Principles of Political Economy and Taxation. Von Thunen pioneered German historical school of thought in which land rent depended on location. For sometime he was overshadowed by neoclassical literature in English speaking world until the advent of land economists in the USA and Western Europe in the 1920s.  Why we need theory The need for theory – helps explain and organize facts that help in decision making How is rent determined, The theories in this cause also help explain the structure of cities and why particular uses end up on particular sites, resulting in value In trying to estimate the value of a developed property, in using past financial statements, theory is a testing tool with which the analyst questions the logic underlying those historical numbers in the market places. In trying to arrive at value using comparables, theory helps put a value on difference in location. Theory helps one project future responses to trends observed today in the market.  Empirical Examination of the Von Thunen Model Many people have tried to test Von Thunen’s model. Notable researchers are: 1. R.J. Hovarth in Addis Ababa He concluded that although ideal conditions stipulated in the isolated state did not exist, empirical data existed to show that patterns identical to the isolated state were found around Addis Ababa  Empirical examination of Von Thunen’s Model 2. Robert Sinclair in the USA (1967) 3. Peter Muller in the USA What determines value of land? Private value of land = market price Social value of land = market price + value of externalities Market price is determined by what a buyer is willing to pay and what a seller is willing to accept  Land Rent Land Rent = any economic surplus associated with the production of goods that uses land as an input into production. Profits = Total revenues – Total costs  What Determines Land Value? Two general theories: 1. Ricardo: Quality of land determines land value  high quality land that is the scarcest will have the highest land rent associated with it because this will generate the most economic surplus 2. von Thünen: Distance from central market (i.e., transportation costs) determines land rents.  Factors affecting Value of Land The value of real estate depends on the usefulness, scarcity, transferability and availability of effective demand for it. Factors affecting land value: 1. Physical Environmental forces These include, Location, size, shape, frontage, soil conditions, topsoil, drainage, contour, topography, vegetation, accessibility, utilities, climate, view and freedom from environmental contamination. The value of structures are influenced by : construction quality, design, adaptability, harmony with surroundings.  Factors affecting Value 2. Economic forces This reflect how the property interacts or fits within the economy of the region or neighbourhood e.g. health of the major employers in the community, availability and terms of credit, price levels, tax rates and labour supply 3. Social forces This involve attitudes to household formation, population trends, neighborhood character, architectural appreciation and cultural opportunities. Social forces are more subjective than the two above and therefore difficult to quantify from a valuation perspective.  Factors affecting value 4. Government forces These include local and central govt and are referred to as public policy. E.g. zoning, building codes, property taxation, public housing, police and fire protection. These forces are dynamic and therefore the decision maker should be forward looking to estimate the impact of these forces over the life of the subject property. The relationship between value, Price and Cost Value The power of a good or service to command other goods and services in the market place. Value is defined as the present worth of the future cashflow Price The amount of money that is actually paid or offered for a good or service. Price is the estimate of value in terms of money Cost Cost is a historical figure. A price paid in the past, or the amount needed to construct a building today.  Value influences and principles Valuers have developed certain value influences and principles based on experience that represent a crystallization of their understanding of how the real estate market place operates. 1. Anticipation Meaning an estimate of value is based on future expectations rather than exclusively on past performance. Concern is over future productivity and not simply on historic data. 2. Change The emphasis here is on the identification of trends that affect the subject property and that will cause foreseeable consequences. All factors that affect value are constantly changing, hence the estimate of value is only valid on the date indicated.  Value influences and principles 3. Supply and Demand Demand must be backed by purchasing power in order to be effective and supply must provide utility satisfaction in order to attract effective demand 4. Competition Expresses the principle of free enterprise system. Competition has the impact of reducing any abnormal profits from the property so that eventually, profits move towards being normal  Value influences and principles 5. Substitution When two properties have the same utility the property offered at the lower price will sell first. 6. Surplus productivity Of the four factors of production, land is assumed to be the last one to be paid because it plays a passive role and a return first be paid to the other three factors in order to induce them to utilize land. Consequently, the return to land is surplus productivity in the sense that it is the residual return after payments to the other 3 factors.  Value influences and principles 7. Conformity Refers to the need for social and economic homogeneity in a neighbourhood to ensure maximization of value. Hence grouping similar activities creates complementarity as well as other benefits. 8. Contribution This concept is related to that of marginal utility. It addresses the impact on value of increasing the Net Operating income relative to the cost of doing so. Hence the costs should be justified by the additional benefits anticipated.  Value influences and principles 9. Externalities The principle suggests that positive and negative economies can be generated by factors external to a specific property. The impact of location in an income sense on the value of a given parcel means that real estate is probably affected more by externalities than is any other asset. This is because real estate is owned by many people hence the increased likelihood of any land owner being affected by externalities. 10. Highest and Best Use The reasonably probable and legal use of vacant land or improved property which is physically possible, appropriately supported, financially feasible and that results in the highest value. Rural Land Markets A land Market  What is a land market? Market = where and how the buyers and sellers of a commodity get together to make exchanges. Market area = The area within which the price of a commodity tends toward uniformity, allowing for differences in transportation costs. Perfect competition market conditions: Many buyers and sellers Homogeneous product; divisibility of product Perfect information No externalities  Characteristics of real estate markets Real estate assets and markets are unique when compared to other goods. The two primary characteristics of real estate assets are their heterogeneity and immobility. Because of these two factors, the market for buying, selling, and leasing real estate tends to be localized and highly segmented, with privately negotiated transactions and high transaction costs.  Heterogeneous Products For real estate, however, age, building design, and especially location combine to give each property distinctive characteristics. Each parcel of land has a unique location-value signature (LVS) and differences in LVSs create variation in property values.  Heterogeneous Products contd... Locational differences are particularly critical for retail properties. Drastic value differences may result between retail properties on different sides of the same street, depending on whether the property is on the “going-home” or the “going-to- work” side. Most food outlets, clothing stores, and service centers prefer to be on the going-home side of the street. Even within a single shopping center there are important differences in location for a retail establishment depending on the need of the establishment for exposure to shoppers.  Immobile Products Real estate is immobile. Although it is sometimes physically possible to move a building from one location to another, this is generally not financially feasible. The vast majority of structures removed from the land are demolished rather than moved. Another term for location is access. For households it is access to schools, shopping, entertainment, and places of employment.  Localized Markets Real estate markets tend to be localized. By this we mean that the potential users of a property, and competing sites, generally lie within a short distance of each other.  Segmented Markets Segmented markets – Geographically – By type of land use – Partial vs. all rights – Rent vs. Own  Characteristics of a rural market contd…. Imperfect information – Need to have local knowledge – Uncertainty and risk regarding future returns from land Transaction costs – Additional costs to transferring land, e.g., brokerage and titling fees, taxes, survey fees Characteristics of rural market contd Special legal requirements that affect transfer of land Large considerations with most transactions Customary use of credit arrangements to supplement the limited equity interests held by many buyers and sellers Infrequent participation in the market by average buyer and seller  Characteristics contd....High Transaction costs Transactions involving directly held real estate generally are privately negotiated between the buyer and seller. The negotiation process can be lengthy, and the final transaction price and other important details such as lease terms are not usually observable. Because real estate assets are highly heterogeneous and transaction details are not widely available, the time and effort involved in searching, pricing, and evaluating alternative properties is substantial. Transaction costs include both search costs (e.g., time) and actual costs. Thus, the transaction costs involved in the transfer of directly owned real estate from one owner to another are high compared to many other goods and investments. In addition, real estate agents, mortgage brokers, attorneys, and others may be involved in the transaction due to the considerable value of the investment. These services tend to increase transaction costs.  How is Land Transacted? Nonmarket transfers (e.g., gift or inheritance) Sale by private agreement between buyer and seller Sale through real estate broker Sale at auction (open or sealed bid)  How is land accessed or acquired? Private- Private: Access is gained through transfer of ownership in private transactions or by Inheritance Donation – benevolence and land redistribution as part of a legacy to institutions e.g. schools, hospitals etc. Adverse possession – continuous possession for 12 years see case of Ithongo Vs. Thindiu 1981 Public-private allocation – where the state gives an individual access to state land Customary allocation: land delivery may take place in the framework of customary law First cultivation – mijikenda Violence Land Adjudication and registration of title Land before colonialisation was acquired through customary tenure. To extinguish this customary tenure and provide for written or modern tenure systems it was necessary to carry out 2 processes: 1. Land adjudication and registration of titles 2. The process of setting apart by the central govt or by local authorities.  Getting through the registration system The compilation of land ownership records consist of 4 basic steps: 1.Adjudication or determining who owns what 2.Demarcation or marking out the boundaries on the ground 3.Surveying or recording the position of the boundaries 4.Documenting or compiling all evidence into a set of registers  Adjudication This is the process by which existing rights in parcels of land are finally and authoritatively ascertained. It is the 1st step to title registration. The process of adjudication can be sporadic or systematic or compulsory  Demarcation This procedure consists of various levels of complexity, depending on the distinction between fixed and general boundaries and the required level of surveying involved.  Surveying It represents an additional step, after the adjudication of ownership and location of boundaries, for providing the necessary conditions for secure tenure  Documenting The results of the other three steps are entered into a register. Two types of records are maintained a) data indicating the name of the property owner and details of tenure, including encumbrances and b) graphic data showing the results of the survey on a plan  Transfering title How is property conveyed from one person to another? Conveyancing is the transfer of legal title of property from one person to another, or the granting of an encumbrance such as a mortgage. A typical conveyancing transaction contains two major landmarks: the exchange of contracts (whereby equitable title passes) and completion (whereby legal title passes).  Conveyancing Conveyancing occurs in three stages: before contract, before completion and after completion. A buyer of real property must ensure that he or she obtains a good and marketable 'title' to the land; i.e., that the seller is the owner, has the right to sell the property, and there is no factor which would impede a mortgage or re- sale.  Conveyancing A system of conveyancing is usually designed to ensure that the buyer secures title to the land together with all the rights that run with the land, and is notified of any restrictions in advance of purchase. In most mature jurisdictions, conveyancing is facilitated by a system of land registration which is designed to encourage reliance on public records and assure purchasers of land that they are taking good title.  Informal Land Transfers “The development of a coherent set of principles to govern the informal acquisition of an interest in land has been frustrated by the courts’ apparent difficulties in distinguishing between concepts such as resulting and constructive trusts and the doctrine of proprietary estoppel.”  Informal transfers of land The transfer of land has historically been governed by the need to exercise caution and formality. It is the case that the use of formal means of rights creation in land such as those provided by a deed or other form of signed writing has historically governed the transfer of interests in land. It is thought that such formal methods of rights creation provide for clarity and certainty, particularly when disputes arise, as they can usually provide an accurate picture of events.  Informal transfers of land The numerous ways in which the courts started to recognise the informal acquisition of interests in land can be categorised into four-fold. The first was through the means of implied trusts; the second was by means of the proprietary estoppel doctrine, the third was through informally conferred life interests and the fourth, through donations mortis causa.  Implied Trusts It is usually the case that a transfer of a legal estate in land essentially carries the entire beneficial interest in the land conveyed and the person in whose favour the transfer is made is able to lay claim to both the legal and equitable interests in the land. This is usually so, unless another person is able to establish a basis upon which they have also acquired a beneficial interest in the land concerned. Such a person faces an uphill task of establishing a beneficial interest in the land where details of such an interest are absent from the express terms of the transfer of land. Such a claimant would usually have to establish their claim on the basis of an implied trust. Implied trusts are primarily of two kinds, the resulting trust and the constructive trust.  Resulting Trusts A resulting trust is based upon the intention of the parties and operates where property is transferred without intending that there should be beneficial ownership in the transferee. It is thought that a resulting trust is used to give effect to the intention of the parties, which in the default of any other evidence, is presumed to underlie the ways in which money is put towards the acquisition of a legal title. It is therefore the case that resulting trusts are usually used to deal with problems arising from money contributions towards the purchase of land.  Constructive Trusts Constructive trusts on the other hand, arise by operation of the law. They are imposed by the courts where it would be unconscionable for the holder of the property to maintain his sole beneficial ownership in derogation of rights which have already been bargained away informally to another. In constructive trusts cases, it is usually the case that both parties have already had a discussion as to their equitable rights in the land, with one party having made a promise to another. In such instances, the courts construct a trust to give effect to the parties’ understanding so that one party is not unjustly enriched at the expense of the other.  Constructive Trust According to Oakley , there are three major instances where the courts are likely to impose a constructive trust. These are: (i)where a person has obtained an advantage by acting fraudulently or unconscionably or (perhaps) inequitably; (ii)where a fiduciary has obtained an advantage as a result of a breach of his duty or loyalty; and (iii)where there has been a disposition of trust property in breach of trust. It is usually thought that there are close parallels between constructive trusts and the doctrine of proprietary estoppel.  Proprietary Estoppel The law relating to proprietary estoppel provides a further means by which rights in land may be created informally. As with the constructive trust, proprietary estoppel is often used to avoid formality requirements, but it is unique in that it can also create legal obligations. Proprietary estoppel is usually said to arise from an owner’s encouragement of or acquiescence in another’s mistaken belief about his present or future rights in the owner’s property. Proprietary estoppel is usually employed as an alternative route for spouses or partners who believed that they were to receive a share in the family home but cannot show the common intention necessary for a constructive trust.  Informal Land transfers Most urban households in the developing world live in informal settlements. Up to 85 percent of new housing is produced informally, a trend that is especially pronounced in sub-Saharan Africa. Land delivery processes in Uganda’s informal settlements are regulated by both formal and informal institutions. Whilst most landowners would like to use formal mechanisms such as land registration, these processes are too expensive for lower income groups.  Informal Land transfers Most landholders would like to register their land but the process is lengthy and expensive. Many plots in informal settlements also fail to meet official standards of size and accessibility. A study done shows that land delivery processes in informal settlements draw from both formal rules and customary practises. Their success is due to high levels of trust and social legitimacy. At times, land purchasers use formal symbols to reinforce informal institutions – for example hiring a professional surveyor to demarcate their land, even though they do not complete the lengthy and expensive registration process. The research also demonstrates that formal and informal institutions are closely linked. Local councils and other formal actors constantly use both formal and informal processes.  Informal Land Transfers The research concludes that policymakers should: explore how the formal system can learn from informal processes of land delivery recognise the role local councils play in informal land access processes and consider the possibility of enhancing their contribution recognise that residents of informal settlements cannot afford the complicated and expensive land registration process, and that they do not use informal methods out of antagonism towards, or ignorance of, state rules.  mortis causa A donatio mortis causa (Latin, meaning "gift on the occasion of death") is a gift made during the life of the donor which is conditional upon, and takes effect upon, death (in the United States, it is often referred to as a gift causa mortis). It is separate and distinct from both a normal inter vivos gift, under which title passes immediately to the transferee, and from a testamentary gift, which takes effect under the provisions of a properly executed will. Where the subject matter is a chattel which has been delivered to the donee, the donee's title is complete on the donor's death, no further act being necessary. In the case of a chose in action or land, the donee's title is not complete on the donor's death as the legal title vests in the donor's personal representatives. The donee can seek the assistance of the courts to compel the personal representatives to do whatever is necessary to perfect the donee's title, and this is one of relatively few exceptions to the equitable maxim that "equity will not assist a volunteer."  Requirements There are three requirements for a valid donatio mortis causa, and these were laid down by Lord Russell CJ in Cain v Moon 2 QB 283: 1. the gift must have been made in contemplation of, though not necessarily in expectation of, death; 2. the subject matter of the gift must have been delivered to the donee; and 3. the gift must have been made under such circumstances as to show that the property is to revert to the donor if the donor should recover.  Land Use Policy For BRE 203 Land economics 1  definitions Land Use An expression of man’s management of eco-system in order to produce some of his needs Land use is formed by a choice made by the individual land user operating within broad environmental limitations and government influence  Define Policy It refers to general principles and proceedings Overall policy is formed by the prevailing political power structures. Politics are alternative/conflicting opinions Thus politics form the basis of policy and continuously modifies it  Define land policy It is a broader concept that focuses on land tenure/ownership and may include aspects of law Some consider land use policy as part of land policy  Land Policy West divides land policy into 3 dimensions: 1.Environmental 2.Spatial 3.And Tenure  Land Policy These 3 dimensions determine land policy as part of land use policy Land policy would then mean, the operation of public authority in tenure questions and promoting especially the legal intentions of land use policy  Define Land Use Policy The framework to manage and control land use and natural resources, placing issues of ownership/tenure secondary Land use policy means primarily the intentions, programs and operations of public authority to control land use in desirable direction It can also be partly assimilated with the broader concept of environmental management, wherein land use policy acts as one of the most important part.  Define Land Use Policy It is also a statement of intent setting out goals on land management It stems from the desire to order and regulate the use of land in an efficient and ethical way, thus preventing land use conflicts.  Land Use Planning Refers to the decision making process that is fundamental in policy making It is the process of examining different land use options, choosing between them and making of a land use plan to make the chosen priorities to come true. Land use planning is one of the most important means of land use policy Rational for a land use plan Land is a limited resource and thus, use of it must be planned carefully In the absence of a national land use policy, land use in itself is not fully regarded but rather is a battlefield of other (sectoral) policies and individual interests.  National Land Use policy serves: To address land to the best suitable use along its qualities and preferences in society Required to guarantee persistence of land use planning in order to manage often irreversible land use decisions Contributes to equality by balancing differences to welfare  Land Use policy It can be divided into 3 parts: Every part having a different nature of its own; Control system Monitoring system Administrative system  Control System This consists of different plan documents, conservation decisions and other plans that concern a specific area/region/space  Monitoring System Looks at the issue of whether the plans stated earlier are realised Environmental impacts are also assessed in this system  Administrative system Whether public or private is responsible for producing and also partly for executing land use plans  Land Use Policy Where there is no explicit policy, land use is determined by 3 interdependent forces; 1. Individual decision makers follow incentives to maintain or alter existing patterns of land use in order to maximize profits from their land 2. Public policies in various sectors are undertaken primarily to achieve objectives not directly related to land use e.g taxation or location of public services, modification of incentives to private sector  Land Use Policy 3. Land use decisions are affected by public policies specifically designed to alter or preserve prevailing land use patterns, especially at local government level Objectives of a land Use Policy Optimal and rational land use distribution in order to gain the maximum benefits on use of land and regions and prevent abuse Optimal and equal location of different socio-economic activities in their relation to each other and to the area under consideration Conservation of healthy environment and high quality soil and water and improvement of low quality areas Acceptable structure of land tenure and management Legitimacy and reasonableness of land use  Means of Land Use Policy Land use plans and the regulations directly connected with this plans Other legislation that affects land use decisions Economic means Land tenure and land policy The most obvious means of a land use policy is land use planning and zoning by which a specific area is assigned for a specific use.  The Means of a Land Use Policy Legislation is important, in helping meet land use objectives Economic means Consist mostly of ‘free markets’ that are commonly supposed to lead to optimal and capability oriented land use of each area  The Means of Land Use Policy The impacts of Land tenure Because of their strong nature, means of land tenure and land policy can be stated to represent immediate influence to realise the objectives of land use policy Outputs of a land use policy A set of principles A land use plan Land use regulations  Actors in Land Policy Main Actor is Government: In Kenya ministries concerned include: 1. Lands and Physical Planning 2. Min. of Environment 3. Ministry of Devolution – County Governments  The Situation In Kenya Kenya does not have a comprehensive and codified land use policy. It has however, several laws on land utilization including: 1. The Physical Planning Act (Cap 296) 2. The Environmental Management and Coordination Act (EMCA) of 1999.  Situation in Kenya The National Land Policy Sessional No. 3 of 2009 provides broad principles and guidelines on land use management issues, recommending the formulation of a National Land Use Policy  National land Policy for Kenya Chapter 3 of the National Land policy recognizes land not just as a commodity that can be traded in the market but also as: 1. An economic resource that should be managed productively. 2. A significant resource to which members of society should have equitable access to. 3. A finite resource that should be utilized sustainably. 4. A cultural heritage that should be conserved. The Constitution of Kenya 2010 and Land Use Chapter 5 deals with matters of land and the environment. Article 60 on principles of land policy recognizes the need for land to be held, used and managed in a manner that is equitable, sustainable, efficient and productive Article 66 sees the need to regulate land use and property in the interest of defense, public order, public mortality, public health or land use planning The Constitution of Kenya 2010 and Land Use Article 65 establishes the National Land Commission. Its mandate includes having oversight responsibilities over land use planning throughout the country. Article 68 gives parliament power to revise, consolidate and rationalize existing land laws; revise sectoral land use laws and Enact legislation to prescribe minimum and maximum land holding acreages in respect to private land and regulate the manner in which land maybe converted from one category to another.  Spatial Planning This is a interdisciplinary and comprehensive approach aimed at achieving balance and desired physical organization of space Spatial planning provides for a framework necessary for the land development activities of all sectors and spheres of government and the private sector Spatial planning provides for:  Spatial Planning 1. Medium for man and his habitat 2. Medium for the growth strategy in space 3. Medium for interplay of spatial factors and actors  Spatial planning outputs Include: 1. National Spatial Development Plans 2. Regional Spatial Development Plans 3. Sectoral Development Plans 4. Local Development Plans  Key issues to note The following key issues need to be resolved in the Kenyan Context: 1. Is the National Land use planning and National Spatial Planning one and the same thing? 2. Differentiate between land Use and land Development  Physical Planning and the Land Policy To achieve the desired results of promotion of social economic development in a sustainable manner; the preparation of spatial development frameworks are prepared within specific context: a) Constitutional Rights and spatial planning b) Natural resource base c) Population and socio-cultural factors d) Economic factors e) Human settlements f) Infrastructure facilities and social services g) Legal and institutional context  Key problems to be addressed under the Kenyan Land Use Policy 1. Underutilization of land especially in the large farms sector (only 40% is used productively) 2. Land degradation- due to population pressure, overexploitation arising from poor/inappropriate land use 3. Increase urban squalor 4. Land use conflicts 5. Abandonment of agricultural activities – due incidents of HIV/AIDS especially in rural areas, poor infrastructure, lack of marketing facilities, financing and extension services and insecurity  Why A land Use Policy The need for a land use policy was recognized by the National Land Policy of 2009 and re-emphasized by the Kenya Vision 2030. This vision recognizes the land use policy as a basis for sustainable development initiatives. The policy is important in addressing issues of optimal utilization of land and related resources by providing principles and guidelines for:  Why A land Use Policy Proper management of land resources to promote public good and general welfare Land Use planning to enhance sustainable development Anchoring land dev. Initiatives Mitigating problems associated with poor land use Promoting environmental conservation and preservation Preparation of a national spatial plan and integration of various levels of land use planning. Objectives for a land Use Policy for Kenya 1. To harmonize initiatives in the utilization of land resources so as to have an integrated and sustainable strategy 2. Provide guidelines for land use planning, resources allocation and resource management 3. Provide suitable legal, administrative, institutional and technological guidelines for managing current and emerging land use trends 4. Provide principles to promote optimum utilization of land resources to meet governance, socio- economic, political and cultural obligations of the people of Kenya  Objectives contd.. 5. Promote new initiatives in land use management that will respond positively to market demands 6. Provide integrated framework to foster collaboration among different land users in tackling issues of abuse of land and planning 7. Develop and strengthen coordinated institutional linkages in planning 8. Provide a framework for the preparation of a national spatial plan and review of various land use plans 9. Provide guidelines in mainstreaming gender issues in land use planning and management  Outputs A harmonized and sustainable approach to the utilization of land resources Guidelines for land use planning, resource allocation and resource management Legal administrative, institutional and technological guidelines for managing current and emerging land use trends Principles that promote optimum utilization of land resources to meet governance, social-economic, political and cultural obligations of the people of Kenya  Outputs contd New initiatives in land use management that will respond positively to market demands Integrated framework to foster collaboration among different land users in tackling issues of abuse of land and planning A framework for the preparation of a national spatial plan and review of the various land use plans Guidelines mainstreaming gender issues in land use planning and management.  Land Use Policy Issues Policy elements Land Use Principles Land Use Plans Continuous Land Use Planning Environmental Impact Assessment (E.I.A) Incentives and Penalties Land Tenure System Institutional Arrangement  Guiding Principles In Pursuit of the basis of a National Land Use Policy, the Following guiding principles will be upheld: 1. Efficiency and ecological sustainability 2. Cultural integrity 3. Productivity 4. Environmental Conservation and preservation 5. Access to land use information  Guiding Principles contd Conflict resolution and management Efficient land use management Gender equity Sustainable land use Effective regulation of land use practices Good governance  Land Use Concerns Human settlements Economic development Urbanization and population growth Planning and Enforcement Environment and Land Use management Productivity and food security Climate