The evolution of land values in the context of rapid urban growth : a case study of Bogota and Cali

Urban and Regional Report No. 80-10 URR- golo THE EVOLUTION OF LAND VALUES IN THE CONTEXT OF RAPID URBAN GROWTH: A CASE STUDY OF BOGOTA AND CALI by Rakesh Mohan* and Rodrigo Villamizart October 1980 This report was prepared under the auspices of the City Study Research Project (RPO 671-47) as City Study Project Paper No. 14. The views reported here are those of the authors, and they should not be interpreted as reflecting the views of the institutions to which the authors are affiliated. This report is being circulated to stimulate discussion and comment. It was originally prepared for the World Congress on Land Policy, June, 1980, Cambridge, Massachusetts. Urban and Regional Economics Division Development Economics Department Development Policy Staff The World Bank Washington, D. C. * The World Bank t Corporaci6n Centro Regional de Poblaci6n, Bogotg, Colombia ACKNOWLEDGEMENTS We are indebted to a number of individuals for ,the availability of unusually rich sets of data that have been utilized in this study. Mr. Guillermo Wiesner of Wiesner and Cia. Ltda., Bogota, painstakingly compiled data from 6000 land transactions covering all parts of Bogota from 1955 to 1978: we are grateful for his labours and for sharing this information with us. Julian Velasco and Gilberto Mier were kind enough to include the raw data in their paper on land values in Cali. We thank Planeaci'n Municipal of Cali for making available this document (Velasco and Mier, 1980) and the population data in Tabares (1979). The industry of Jose Fernando Pineda resulted in barrio (neighborhood) level population data for 1964, 1973 and 1978 for Bogota. Clearly, this paper would not have been possible without his help. We have also benefited from discussions with Gregory Ingram and Alvaro Pach'n. We thank Leslie Kramer, Sungyong Kang, and M. Wilhelm Wagner for arduous and timely research assistance. TABLE 'OF CONTENTS Page No. I. Introduction: A Simple Model of Urban Land Values'.... 1 II. The Changing Structure of Urban Land Values and Population Densities .................................. 11 III. The Smoothly Evolving Land Value Surface: Some Wrinkles ........................................ 29 IV. Rising Land Values: Should We Worry? ................. 43 LIST OF TABIES Table No. Page No. 1 The Growth of Bogota and Cali, 1800-1978 ...... 12 2 Evolution of Population Density by Rings: Bogota and Cali, 1964-1978 ................... 14 3 Evolution of Land Values by Rings: Bogota and Cali, 1964-1978 ....................... 17 4 Population Density Patterns in Bogota and Cali, 1964-1978 ........................................ 21 5 Land Value Patterns in Bogota and Cali, 1959-1978 23 6a Land Value and Density Gradients in Cali by Sector, 1978 ............................................. 33 6b Land Value and Density Gradients in Bogota by Sector, 1978 ..................................... 34 7 The Spatial Pattern of Housing in Bogota, 1978 ... 38 LIST OF FIGURES Figure No. Page No. 1 Pattern of Land Values in a Growing City (1) ..... 6 2 Pattern of Land Values in a Growing City (2) 9 3 Land Price Indices in Bogota ..................... 18 4 The Changing Urban Structure of Bogota and Cali, 1964-1978 ........................................ 24 5 Fitting Quadratic Functions ...... .......... 26 6 Evolution of Land Prices Along Main Radial Corridors (Bogota) ..g...o. ....................... 41 LIST OF MAPS Map No. 1 Population Density in Bogota, 1978 31 2 Land Values in Bogota, 1978 ...................... 31 3 Average No. of Floors in Bogota, 1978 ............ 37 A.1 Sector and Ring System in Bogota ................. 48 A.2 Sector and Ring System in Cali ................... 49 I. Introduction: A Simple Model of Urban Land Values That land policy is an important component in the process of public policy making is amply evidenced by the convening of this congress. One of the key ideas resulting from the U.N. Conference on Human Settlements when it met in Vancouver in 1976 was embodied in the preamble to the Recommenda- 11 tions for national action on land: "Land, because of its unique nature and the crucial role it plays in human settlements, rannot be treated as an ordinary asset controlled by individuals and subject to the pressures and inefficiences of the market". 'It is ironic then that our knowledge of the actual operation of urban land markets and of the resulting land values is highly limited. Pronouncements 6n the desirability of, and on the contents of, urban land policy are easy to find: facts on which these policies are based are, however, distinguished by their absence. Our objective in -this paper is therefore to present a somewhat detailed case study of what in fact has happened to land values in two Colombian cities during a period of extremely rapid growth during which both the cities have roughly doubled theLr size. This is done with the belief that it is only when we can understand the role of land values in the urban economy and of their relationship with, and effect on, the evolving urban structure of cities during periods of rapid growth, can we begin to enunciate policies which ultimately enhance public welfare. l/ Nathaniel Lichfield (1980). -2- Much of the concern with the operation of land markets arises from the observation of rising land values which are somehow seen as "unwarranted" or "undesirable". Secondly, when land values do rise rapidly certain lucky individuals who do own land are seen to reap large windfall gains which are regarded as unearned. Such anxiety is understandable since land is a major input into the production of housing--which everyone needs--and of urban production facilities--on which everyone depends for their livelihood. Secondly, windfall gains or large gains are usually astociated with aspects of monopoly power and thus there is a general suspicion that urban land markets are characterized by monopolistic arrange- ments. An understanding of the operation of urban land markets and their relationsip with urban growth would, however, reveal that these land value increments must necessarily occur along with urban growth and more in certain parts of the city than in others. Thus, even when there is no monopoly in land ownership windfall gains would accrue to individuals who happen to own land in those parts. The latter is then more an income distribution issue than a land policy issue. Before presenting the empirical information on land values in Bogota and Cali we develop a highly simplified but useful model of land values which will serve to put in perspective the patterns observed. Gregory Ingram (1980) places land in the context of conventional economic theory. We merely continue in a similar vein but pay more attention to the role of land values in ordering the internal structure of a city. The model developed below is highly simplified and might appear to belabour the obvious. Its results, however, are suprisingly powerful and help us understand the patterns we then observe. -3- Urban land is demanded as an asset in two ways. It is either a factor of production in the production of housing or factories or public services (such as roads, parks), when returns to it come in the form of housing services or income from the produced goods. It is also demanded as what might be termed a "pure asset" in people's portfolios. Developed land is used as both: it usually forms the major portion of a family's assets as well as a factor of production in housing. Undeveloped land is, however, mainly used as a pure asset. "The function of land prices is to 1/ allocate land to valuable uses". Thus, when land price is high it indicates scarcity and its use is economized. This can also be stated conversely: when land is scarce, its price is high and its use is consequently economized. As with the prices of other goods, the price of land is important as a signal for the rational allocation of its use. From what does land derive its value? In agricultural uses it is easy to understand that an acre of more fertile land produces more food and is therefore more valuable as compared with an acre of less fertile land. But in the urban context it is clearly not fertility that gives land its value. We can, however, stretch the agricultural analogy to obtain an understanding of the value of urban land. If we consider a city surrounded by agricultural land of equal fertility which produces the food consumed in the city, will the land be uniformly valuable regardless of the distance from the city? Probably not. We can expect the price of food in the city to be the same regardless of its origin. If all the land is equally fertile 1/ Mills & Song (1979), page 99. -4- we can expect all other inputs to cost the same per acre regardless of the distance from the city. The farmers further from the city, however, have to spend more on transportation per ton of food than those nearer the city. All farmers will therefore want to locate nearer the city and will consequently bid up the value of land near the city and we will observe what might be called a land value gradient with land values declining.with distance from the city. We can now drop our unrealistic assumption of equal fertility. More fertile land will be more valuable than less fertile land at the same distance; land nearer other amenities such as water sources will be more valuable as well. We now have a simple model of the value of agricultural land: V = (distance, fertility, other amenities) where V is the value of land per unit area. By employing minor changes L in terminology we have a model of urban land values. If we regard distance as a measure of access characteristics, fertility as merely use of site ' specific characteristics, and rewrite amenities as neighborhood qualities, we can now write: VL = (access characteristics, neighborhood qualities, .. site specific characteristics) and we have a plausible model of urban land values. To revert to agri- cultural land once more: when the city expands, land near the city gets converted to urban use and distance from the edge of the city decreases for all the remaining land. We can therefore expect the value of each plot to rise. The access of each plot improves and therefore its value rises as well. Much the same thing happens within the city as the city grows and access of plots improves. -5- Now what confers good access characteristics to a plot of land within a city? People congregate in a city in order to take advantage of improved employment opportunities provided as a result of the concentration of a variety of activities which arise because of a concentration of people. The argument is somewhat circular but does capture the assense of cities. In general, economic activities are concentrated in or near the centre of a city (we can even define the centre of a city as that part of the city which has a concentration of activities). Measures of the concentr,,ation of activities would include density of employment and of residential population. Characteristically, employment densities are highest in the centre of cities and decline with distance from the city centre. Thus, access characteristics of land also decline with distance from the city centre. To make the point clearer, if all employment in a city is in the centre, access characteristics will obviously decline with distance from the city centre. This is not an unrealistic representation of szall cities, where almost all the commercial economic activity is located in the centre of the city. As a city grows the access characteristics of the city centre itself decline on account of increasing average distances from the city centre of the residential population. Thus, commercial economic activity springs up in all parts of the city and access characteristics of neighborhoods distant from the city centre improve. Consequently we can expect residential densities as well as land values to increase in all parts of the city. Recall that this phenomenon is not very different from the effects of an expanding city in agricultural land values suggested earlier. From this simple, plausible model of land values we therefore have a number of strong results: -6- i) Land values, population densities and employment densities, can be expected to decline with distance from the city centre. Indeed, more rigorous economic models suggest an exponential decline of these quantities from the city centre. ii) An expanding or growing city will result in the rise of land values and densities all over the city, with perhaps a proportionally smaller increase in the centre because of its hypothesized relative loss in access characteristics. If the pattern of decline from the city ccntre is exponential we would then expect the curve to rotate somewhat as shown in the figure below: Figure 1. PATTERN OF LAND VALUES IN A GROWING CITY (1) V _ land 0 values 0 A B distance If V is the value of land at the centre of the city, V A represents 0 0 the land value pattern at an initial time period and V B when the city 0 has expanded outwards to B later. We are assuming here that V has 0 remained constant. The slope of such a curve, or the percentage decline in land values or densities per unit distance, is a convenient summary measure describing the structure of the city. The smaller the slope of a density gradient, the smaller the proportion of people residing within a -7- given distance of the city centre. The decrease in this slope is often referred to as a measure of decentralization. iii) With a declining slope and non-decreasing V we can there- 0 fore expect a growing city to have secularly rising average land values. iv) We have suggested that as a city grows we can expect the con- centration of economic activity to decrease in the centre and that sub-centers .- would develop in other parts of the city. Where these sub-centers develop, because of their relatively better access characteristics (as compared with other land at the same distance from the city center) we would expect relatively higher land values. A land value surface in a growing city can therefore be expected to change from a smooth conical type surface to one with ridges, valleys and small hills. v) Until now we have concentrated on the access character- istics while ignoring the other determinants of land values: neighborhood qualities and intrinsic quality of the land. In the intrinsic quality of land or site specific characteristics we can include the level and quality of infrastructure provision, the geography of the site (e.g., levelled, sloping, uneven). At similar access levels, we would expect land with higher intritsic quality to be more valuable. Neighborhood qualities are essentially externalities--positive or negative. Examples of positive externalities would be the availability of good views, good neighbors, good roads, etc. Negative externalities would include noise, air pollution, etc. A simple view of urban structure and land has yielded us a re- latively sophisticated model of the determination of urban land values. Note that we have only spoken of urban land values not prices. Our obser- vations are therefore system free. We may choose to adopt whatever -8- price system we like in conformance with a society's preferences but to the extent that we regard value as the opportunity cost of using a commodity, the conjectures or hypotheses of land value patterns are general. Conse- quently, if price is determined in a market system we can use conformance to these patterns as one indication of the efficient functioning of the market. In a market system the price of land at time t is the discounted sum of expected returns from holding it in the future. Specifically: 00 R t o= (1+r)t t=o where P is the price of land at time o, Rt is the return from it at time t, r is the discount rate Thus, the price of land today depends on the return we expect from it tomorrow. Thip gives us another clue as to why land prices can be expected to rise with rapid urban growth. We have shown that land values--or opportunity costs-- will tend to rise in a growing city. In addition, as people come to expect these increases they will tend to capitalize them today with the expectation of higher returns tomorrow. Thus, we get our sixth result: vi) Land prices can be expected to lead urban growth i.e. prices increase before the opportunity cost of the land increases. Until now we have mainly talked about the price or value of specific parcels of land. What do we mean when we say that the price of land has increased in general? It should be obvious by now that such a statement is indeed difficult to interpret. The observed price of any commodity is essentially a distribution around some mean and it is, in general, not too -9- difficult to find the mean. If a market does not contain significant distortions the variance in observed prices is small. Thus, a statement concerning the trend of apple prices, for example, is relatively unambiguous. The key idea is that the good is homogenous and we can then talk about its price. As we have seen, urban land derives its value largely from its location (access characteristics, neighborhood qualities). Despite having similar characteristics, the value of one parcel can be different from another by an order of magnitude. An extreme view would be that each plot of land is unique and land is therefore not a honogeneous commodity whose average price we can easily talk about. Nonetheless, it is clear that if a growing city causes the land value pattern to change from V A 0 to V B in Figure 1 we can say unambiguously that land values have increased 0 in the city. If the change is as in Figure 2, the change in land values is no longer unambiguous. Figure 2. PATTERN OF LAND VALUES IN A GROWING CITY (2) V- Land 1 Values 2 A B Distance As the city expands, the gradient V A changes tc V2B so that the land values in the city centre decline while those of the periphery increase. Thus we cannot make an unambiguous statement about increasing land values - 10 - in the city. Even the aggregate land values for the whole cit are not very informative since the land area has also changed. Thus we need to be very careful in making statements about changes in average land value in the context of rapidly expanding cities. - 11 - II. The Changing Structure of Urban Land Values and Population Densities Bogota and Cali have both grown at remarkable rates of growth for an extended length of time. Bogota has expanded more than eighty fold over the last hundred years will Cali fifty to sixty fold during the same period. More importantly, they have both grown five to six fold in the post World War II period alone. Table 1 summarizes the growth of these cities since 1800. In comparison, in another fast urbanizing country, South Korea, its two largest cities, Seoul and Busan, have also grown by similar magnitudes. Growth in Colombian cities was most rapid in the fifties and sixties and has since slowed down. As with land values, overall population densities depend crucially on the definition of a city's boundaries. According to available sources it appears that the area of Bogota City has been successively redefined along with its growth with the surprising result that overall density has remained roughly constant at 100 to 110 persons per hectare. Furthermore, according to the current definition of the boundaries of Cali, the population density of Cali is also very similar. In comparison, the central cities of New York:'and Tokyo (each about 8 to 9 million people) have densities of about 110 and 150 persons per hectare2/ ; Chicago and Philadelphia about 60; 3/ 3/ Central- Buenos Aires 150 and Central- Mexico City 210; and Calcutta and Bombay about 120 to 140- . Note that except for Bombay and Calcutta these comparisons are for central cities. It is probably the case that Bogota is more densely populated than comparable Latin American cities if similar 1/ Covering the boroughs of Manhattan, Brooklyn, Bronx and Queens. 2/ Mills and Ohta (1976) p. 685. 3/ For central areas covering about 3 million people in each city. 4/ Data from Mohan (1979). Table 1: THE GROWTH OF BOGOTA AND CALI, 1800-1978 BOGOTA CALI irowth Growth Year Area Population Rate Density Population Rate (ha.) (% per yr.) (persons/ha.) (% per yr.) 1800 N.A. 22,000 6,000 1900 909 100,000 1.5 110 24,000 1.4 1938 2514 330,000 3.2 131 88,000 3.5 1951 N.A. 660,000 5.5 N.A. 284,000 9.0 1964 14615 1,730,000 7.4 113 638,000 6.3 1973 30423 2,877,000 5.8 95 930,000 4.2 1978 30886 3,500,000 4.0 113 1,100,000 3.4 Source: Bogota, Rakesh Mohan (1980) Cali, H. Tabares (1979). -13 definitions are used but less so in the central city. It is also of interest that its density is not very different from that of New York City (excluding Staten Island. We now give a better idea of how the structure of the two cities has changed with this rapid growth. Table 2 presents information on changing population densities by ring in the two cities from 1964 to 1978.1/ Ring 1 is the central business district (c.b.d). Both the cities are semi- circular in shape with mountains constraining growth in the other half of the circle. Thus each ring is semi-circular too. The maximur distance from the city centre is about 15 km. (to ring 6) in Bogota and about 10 km. (to ring 5) in Cali. Various features of these patterns are worth noting. First is the remarkable similarity in structure of the two cities. Growth has clearly occurred by accretion in the outer rings. The density in the c.b.d. has tended to decline somewhat from about 200 persons per hectare. As the cities have grown the growth has occurred on the fringes of the existing cities along with densification of the inner rings. This process is somewhat different from the growth pattern observed in most U.S. cities as they grew in early parts of this century. "Quantum changes in the technology of urban transit imply not only a layering of incrementally lower density rings in the industrial metropolis, but also sharply lower aggregate densities in entire urban areas, the main growth of which came after 1920 -- in the auto age. 2/ Thus while Bogota and Cali have also decentralized with growth in the sense that a smaller proportion of the total population lives in any area of constant radius, they have not. 1/ For definition of the rings see maps A.1 and A.2 in the Appendix. 2/ R. Norton (1979) p. 69. Table 2: EVOLUTION OF POPULATION.DENSITY BY RINGS BOGOTA AND CALI 1964-78 (persons/ha. Area BOGOTA Area CALI (100 ha.) 1964 1973 1978 (100 ha.) 1964 1973 1978 Ring 1 (C.B.D.) 5 220 180 205 1.4 210 150 160 Ring 2 15 210 210 220 15 140 125 135 Ring 3 25 100 140 140 30 95 135 160 Ring 4 60 90 150 155 30 25 70 100 Ring 5 140 25 80 110 15 25 50 70 Ring 6 60 1 17 32 Total 305 502 95 115 91 702 103 121 Source: Bogota, 1964, 1973 Rakesh Mohan (1979). 1978 Alvaro Pach6n (1980). Cali, calculated from data in Tabares (1979). Notes: 1. All figures rounded. 2. City area has been kept constant for all these calculations. In fact both cities have grown during the period in question and many peripheral areas included here were outside the city boundaries in 1964. - 15 -- decentralized like many U.S. cities have where central cities have actually lost populations in absolute terms. This pattern of accretion has been very much in accordance with our hypothetical conjectures in Section I. What has happened to land values during the same period? Good land value data are notoriously difficult to obtain. One of the problems is that it is difficult to separate the value of land from the structure built on it. Most transactions observed in built up cities are, however, of plots with buildings on them. We have been fortunate in obtaining a unique data set of about 6,000 transactions in Bogota covering the period 1955 to 1978 from the files of the long established real estate firm of Wiesner and Cia Ltd. Mr. Guillermo Wiesner has kept meticulous records for almost 40 years because of his own interest in land valuation. We were able to choose the vacant land only transactions and therefore did not have to separate land values from built up property values. Naturally, this data set contains more transactions near the city centre in earlier years and fewer in later years; the converse being the case for the outer rings. We have confidence in the overall quality of the data except that the land values in the c.b.d. might possibly be on the low side in the later years. Naturally, there is little vacant land left in the centre of the city: it may be that the last vacant plots being transacted and which we observe have other quality problems and are therefore not representa- tive of the c.b.d. land values. Our data set for Cali was obtained from the Cali Municipal Planning Office. This data set is probably of less consistent quality since the methods of collection were different. The office has kept files on land value averages for each "barrio" or neigh- borhood. In 1964 there were 84 such observations and in 1978-79 about 170. -16 - These neighborhood averages were based on direct observation as well as interviews with local real estate agents. The compilation has been done by different individuals over this time period. We do not know the averaging procedure used within the barrio. Nonetheless, the overall patterns are clear and we now turn to Table 3 which gives a summary of the evolving land price surfaces for Bogota and Cali from 1964 to 1978. The prices are given in constant 1978 Colombian pesos: earlier nominal values have been converted to 1978 prices by using the consumer price index. The overall pattern is that there is relative stagnation of land prices near the centre and higher rates of price increase near the periphery. This is quite consistent with evolution of the density patterns observed earlier. There are, however, some surprises too. The Bogota data indicate that there has been an actual decline of land prices in and near the c.b.d. in real terms. As remarked above this may be because of data problems. Nonetheless,it is clear that land prices have not risen appreciably in real terms in the centre of Bogota. The trends are better seen in Fig. 3 which shows a land price index for each ring from 1955 to 1977 in comparison with the consumer price index. Land prices have essentially lagged behind the consumer price index in rings 1 to 3 while being ahead of it in rings 4, 5 and 6. The picture for Cali is broadly similar but with some differences. First, it is interesting to note that the magnitude of Cali land prices is similar to that in Bogota. Indeed, the c.b.d. prices seem somewhat higher in Cali than in Bogota. Accounting for possible problems in the data we can at least conjecture that they are unlikely to be less than in Bogota. Their Table 3: EVOLUTION OF LAND VALUES BY RINGS BOGOTA AND CALI 1964-78 2 (1978 Col. pesos/m ) Ave. BOGOTA Ave. CALl Distance Growth Distance Growth from Rate from Rate C.B.D. 1963-65 1972-74 1975-77 1964-78 C.B.D. 1963 1974 1979 1963-79 (km.) % per (km.) % per year year Ring 1 0 4250 3900 3100 -2.3 0 5900 4600 6400 0.6 Ring 2 2.2 1850 1660 1550 -1.3 1.8 1100 1100 2400 5.6 Ring 3 3.8 1350 1350 1320 -0.2 3.4 520 480 1030 4.9 Ring 4 6.5 870 1080 1130 1.9 5.4 380 410 960 6.6 Ring 5 9.8 570 800 850 2.9 6.9 150 370 810 12.0 Ring 6 15.4 370 700 730 4.9 Sources: Bogota calculated from Villamizar (1980) Cali calculated from Velasco and Mier (1980) 1978 Exchange rate US$1 = 38.00 I mI 州 growth rates do seem to be somewhat higher That land price levels are now somewhat similar is consistent with their densities being similar. Mills and Song (1979) also found for South Korea that the gror..7th in land values in the three largest cities was less'than in the next nine largest. Thus, it is safe t conclude that the growth of land values is not higher in larger cities. We need, at this point, to recall the hypotheses to be tested by our simple land value model. i) Land values and population densities do decline from the city centre in Bogota and Cali. ii) Land values and densities increase all over the two cities along with urban growth -- but proportionately less so in the centre. We measure the rotation Gf the land value surfaces below. iii) Bogota and Cali do have rising average land values: in Bogota they have grown at about 3 to 4 percent per year in real terms since 1955. Recall, however, all the caution with which average land values should be interpreted. To-..reemphasize this point: we can say with confidence that land prices have increased in real terms on the periphery, while, at best, they have remained constant in the centre. We now measure the changes in land value and density patterns more systematically by measuring the changes in density and land value gradients. We can express the two patterns by simple exponential equations. D x D 0 e g x (1) and V V e h x (2) w1n,ere D x is the population density at x kilometers from the centre, V x is the land value at x kilometers D 0 , V 0 , g and h are the parameters to be estimated from the date. l/ Note that the data for Bogota for the last period are an average for 1975-77; while that for Cali are for 1979. If it is true, as some be- lieve, that there has been an inflationary spurt in land values in the last 2 years, absolute values in Bogota would not be 'Less than those in Cali. -20 - In fact D and V0 estimate the density and land value at the centre (when x = o, D = D e0 = P ); and g and h estimate the two gradients x o o0 which can be interpreted as the percentage decrease in density and land values, respectively, per kilometer. Tables 4 and 5 present the results of these calculations. First consider Table 4.which gives the density gradients for Bogota and Cali for 1964, 1973 and 1978. The unit of observation is the "barrio" or neighborhood. g declines over time as expected for both the cities and is higher for Cali than for Bogota. For purposes of com- 1/ parison- , in 1970 g was -0.08 for New York, about -0.13 for Atlanta, -0.22 for Seoul, -0.17 for Mexico City, -0.12 for Buenos Aires, -0.08 for Tokyo. Thus Bogota has a gradient similar to other large cities. Among smaller cities like Cali we have informationl/for Monterrey, -0.27 and Guadalajara -0.41 (Mexico), Belo Horizonte, -0.27 and Recife, -0.17 (Brazil), Sapporo, -0.23 (Japan) and Busan, -0.13 (South Korea). We may conclude that Cali is also not atypical. In general we can expect that the larger the city,the higher the income, lower the transportation costs (Mills and Tan, 1978), the lower is g. This also implies that g depends on the age of the city (Harrison and Kain, 1974). Older cities were built when intra-city transportation costs were high and therefore had very dense central cities. Consequently they had very high land values in the centre and this pactern tended to persist over time. We can there- fore expect that the fast growing cities in Latin America would have relatively flatter density gradients. I/ South American cities from Ingram and Carroll (1980). Others from Mills and Tan (1978). Table 4: POPULATION DENSITY PATTERNS IN BOGOTA AND CALI 2 1964-1978 D- Density at C.B.D. Population - - 2 - N 1 3* 4 5 R (OOOS) N Actual Est.(l) Est.(2) (thousando/sq.km.) BOGOTA 1 2 3 4 5 6 7 1964 1730 292 22 23 (20) -0.18 0.12 1973 2878 453 18 27 (10) -0.15 0.22 1978 3500 465 17 24 (10) -0.12 0.19 CALI 1964 640 131 21 39 (17) -0.51 0.21 1973 930 -195 16 24 (11) -0.44 0.09 1978 1100 193 16 29 (11) -0.25 0.11 Sources: Bogota barrio population data from City Study files. Cali barrio population data from Tabares (1979). Notes: 1. Residential population density for central business district (C.B.D.). 2. Equation estimated was Dx _Do e where Dx 'is population density in people/sq.km. -... lat distance x in kilometers. 3. Estimate of Do from above equation. 2 Do 1.is estimated population density at C.B.D. (g1x + g2x ) 4. Estimate of Do from Dx = Do e (other results not reported here). 5. All estimates significant at the .01 level. 6. No. of data points in regressions. - 22 - Now we observe the estimates for D - the hypothetical density at the centre of the city. Column 4 gives the estimated densities in thousands per square kilometer. Column 3 gives actual observed densities. Note that central densities have remained relatively constant with a small observed decline: a phenomenon at least consistent with the behavior of land values in Bogota. The estimated values are consistently higher. The c.b.d. contains a large proportion of commercial economic activity and a relatively small residential population. It is therefore to be expected that estimated D would be higher than the actual. .0 Now consider Table 5 which gives comparable land value patterns for Bogota and Cali. Once again, the estimates for land value gradients decline with time in both the cities as expected. and those for Cali are steeper than those for Bogota. The comparability with the density gradients is remarkable. The estimated patterns are brought together and Bogota Cali Land Value Density Land Value Density 1964 -0.15 -0.18 -0.51 -0.51 1973 -0.08 -0.15 -0.25 -0.44 1978 -0.07 -0.12 -0.23 -0.25 graphed in Fig. 4, where their comparability is evident. Recalling our simple model, we would expect land value gradients to be similar to density gradients. Furthermore, they are consistently lower than the density gradients as has been theorized. (Mills and Song, p. 109). A comparison of estimated V0 (land value at the centre of the city) with actual V0 reveals that our estimates are consistently lower than the actual values. This implies that the gradient of the curve should, in fact, be much steeper at the centre of the city than we have estimated. Table 5: LAND VALUE PATTERNS IN BOGOTA AND CALI 2 (Prices in 1978 Col. pesos per m2 and distances in kilometers) Vo - Price at C.B.D. Population 6 - 4 52 000S) N Actual Est.(1) Est.(2) BOGOTA 1 2 3 4 5 6 7 1959 38 6300 2400 -0.18 0.56 1965 1730 38 5600 2500 (2470) -0.15 0.55 1973 2878 38 5500 1900 (2290) -0.08 0.39 1977 3500 38 4300 1760 (2240) -0.07 0.35 CALI 1959 5000 2240 -0.55 0.44 I, 1963 640 84 5000 2030 (4700) -0.51 0.41 1974 940 155 3700 1030 (2130) -0.25 0.30 1979 1100 171 5300 2070 (4950) -0.23 0.27 Sources: Population: Bogota, Rakesh Mohan (1979) and Cali, Tabares (1979). Bogota estimates from Rodrigo Villamizar (1980). Cali estimates: our estimates from data provided by Velasco and Mier (1980). Notes: 1. Approximate average for central business district. Highest observed values are about 3 times these values. -hxk 2. Equation run was Vx = Vo e where Vx is price at distance x and Po is est. price at C.B.D. 3. Estimate of V0 Ifrom.above equation. 4. Estimate of V from Vx = V0 e(hlx + h2x ) (other results not reported here). 5. All estimates significant at the .01 level. 6. No. of data points in regressions. - 24 - Igure 4. THE CHANGING URBAN STRUCTURE OF BOGOTA AND CALI, 1964-1978 POP DENSITY GRADIENT BOGOTA POP DENSITY GRADIENT CALI 1973 0 iLCL z ' --J 8C2 1973 o-- 1978 a. 71978 1964 1964164 n5 10 1l 5 1o is DISTANCE FROM 080 IN KM. DISTANCE FROM CBD IN KM. LAND VALUE GRADIENT BOGOTA LAND VALUE GRADIENT CALI ti. I.L' C8 ''•s 1979 C 1974 1963 1979 19 74 • 1963, DISTANCE FROM CB0 IN KM. DISTANCE FROM CB0 IN KM. Source: Tables 4 and 5. - 25 - Because of the high concentration of economic activity at the centre we can expect the land values to be determined much more by the employment density than by the residential density. This falls rapidly from the centre and it is therefore quite plausible that land values will exhibit a similar decline. Estimated Vo is therefore quite likely to be lower than this central peak. This brings us to a minor revision of the land value and population density functions. We have observed that the estimated densities were consistently higher for the c.b.d. than the actuals while land values are consistently lower. Indeed, what we would expect is for residential densities to increase somewhat from the c.b.d. and then decline; while land values should decline rapidly from the city centre and then slow down. We have therefore attempted to-fit quadratic exponential functions to the data: 2 D D (g x + g 2 x (3) x 0 and V = V e 1 2 (4) x o0.. with g, positive and g2 negative, the shape of the curve is as suggested above for population density -- illustrated in Fig. 5b.. while for land values h1 is negative and h2 is positive which gives the rapidly declining curve illustrated in Fig. 5a. The signs of the estimated coefficients are consistent with these conditions. The quality of statistical fit improves in all cases, implying that the quadratic functions are better 1/ approximations to the actual pattern- 1/ We do not present the detailed results here. Note that the quadratic functions are not without their own problems. The estimated curve in Fig. Sa for land values starts rising after 6 km -- which is not borne out by the- datA. Fig. 5a. 1979 LAND VALUE GRADIENT CALI Figure 5. - 26 - FITTING QUADRATIC FUNCTIONS C3I 8s 8 2 68 £L 2 m =0 (176x +0.07x - a) -023 2V 2070e DISTANCE FROM CBO IN KM. Fi?g 5b. 1978 POP DENSITY GRADIENT CALI LnL 1ý cmD 2900 e-0.21x -~ 1100 De200 x c CD C 0CL<3 0 2 46 81 DISTANCE FROM C80 IN KM. -27 In particular, note columns (5) in Tables 4 and 5. The estimate of D and V0 from the quadratic functions are somewhat closer to the actuals. We have therefore demonstrated that the land value surfaces of Bogota and Cali have evolved pretty much as we would expect them to within the context of a very simple urban model. Land values have been highest at the c.b.d. but have remained at a constant level in real terms over at least the past 15 years. They have increased faster as one moves out from the city centre and very much in accordance with the accretion of popula- tion that has occurred in successive outer layers of the city. The in- creases in real terms have been modest. In Bogota and Cali we do not observe a chaotic land market in this sense. If anything, the behavior of the land price surface and of population densities is a bit too regular! Both density gradients and land value gradients have flattened but we must not be too hasty to conclude that these cities have decen- tralized in the sense of central cities actual losing population. It is important to note that among large European cities this process of decentralization is of long standing. The population of central London reached its peak in 1930-1940, Paris in 1920, Vienna in 1910, Rotterdam, Zurich, Hamburg, Glasgow, Amsterdam in 1950-60.1/ All have declined since those dates but with increasing suburban populations. To the extent that people congregate together to improve economic opportunities for them- selves and thereby impart higher values to land we need to understand these processes better. With low transport costs (despite the energy crisis) and changing manufacturing technology, there is reason to believe that manufacturing jobs are indeed locating in peripheral locations 1/ From B.R. Mitchell (1978) p. 12. - 28 - increasingly (K.S. Lee, 1978). The volume of these jobs has not yet been large enough to reduce the importance of the city centre as a commercial center. We can expect greater movement of commerce and service jobs with manufacturing in the future with the obvious consequences on access characteristics of peripheral locations. In this section we have emphasized the regularities observed in the land value and density patterns. In the next section we examine these patterns in closer detail and attempt to resolve some of the observed anomalies. - 29 - III. The Smoothly Evolving Land Value Surface: Some Wrinkles So far we have treated the city in a relatively simple manner. The measurement of land value and population density gradients assumes that the city is symmetric around the city center. In the case of Bogota and Cali, each city is constrained by mountains on one side and the cities are therefore semi-circular with the city centre roughly at the centre of the semi-circle. The cities are not, however, symmetric otherwise. If we divide each city into approximate pie slices or radial sectors as shown in Maps A:1a and A.2b in the Appendix we observe distinct differences between the sectors. In Bogota in particular, the north (Sectors 7 and 8) can be characterized as rich and the South (Sectors 2 and 3) as poor. Sectors 4 and 5 comprise the industrial zone or "corridor." In Cali the picture is more mixed but, broadly, the Western part of the city (Sectors 2, 6 and 7) is richer than the Eastern part (Sectors 3, 4 and 5). In general, jobs exceed the number of resident workers in the rich sectors and the converse is true in the poorer sectors. As we might expect the density of population is higher in the poor as opposed to the rich sectors. The question now being asked is how these differences in land use in different sectors of the city affect population density patterns and land values. Do density patterns and land value gradients hold up if calculated for different sectors of the two cities? In order to illustrate the patterns we include 11 These differences are documented in detail in R. Mohan (1979) and K. Terrel (1980). - 30 - as Maps1 and 2, computer maps of land value and population density in Bogota.which show at a glance where population densities and land values are high: the darker the shading, the higher the density or land value. Contrary to our expectations the two maps do not appear to be too similar. It is true in general, though, that in any direction from the c.b.d. the darker shading is nearer the centre with lighter and lighter shades as we move toward the edge of the city. Within the same ring (or same distance from the c.b.d.) it is clear that both densities and land values are quite heterogeneous. Indeed, the denser areas appear to have lower land values than the less dense areas within the same ring. How is this paradox to be resolved? Until now we have concentrated on the access characteristics of land as determinants of land value and have been using distance from the c.b.d. and residential densities as proxies for access characteristics. Now we clearly have to enrich our notions of access characteristics. In addition we have to consider the other determinants of land value mentioned in our simple model: neighborhood quality and intrinsic quality of land. As mentioned earlier, by access characteristics we mean the proximity of land parcels to economic opportunities. We had hypothesised that large or dense agglomerations of people were instrumental in increasing these economic opportunities and that this was the reason for the clustering of population near the city center. Thus a concentration of economic activity in the centre produced relatively high population densities and consequently high land values both of which then declined with distance. The observation that the rich live in some parts of the city and the poor in others leads us to revise some of these ideas. That more jobs are located в А в о •/• в i i i i i � в. i м а w w й i i i i • е! в• .... 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О е ♦ wwг пп Н е е мпw г� отп .а.пw е ♦ �. ' пееа s / 1 • Oi Ос п е е � а вс iл п �! ♦ ! .. ._. � � е. W R � ° � �nat� �1 • s е а • е ' 00 32 in rich sectors means that those sectors are economically more attractive and firms have a greater tendency to locate there. Thus the lower densities of those areas are being more than enhanced by purchasing power. As a proxy for access characteristics we therefore have to employ the notion of purchasing power. The product of population and mean income is prubably not a good measure of these access characteristics since the requirements of a large number of poor---people do not aggregate: each household has meagre demands so poor sectors can only support a limited number of economic activities. Consequently, the rich neighborhooods have an excess of jobs over the resident labour force and the access characteristics of these neighborhoods are not adequately measured by population densities. In addition we caz, expect the infrastructure provisi6ns (roads, lighting, water supply, sewerage, etc.) to be better in high income neighborhoods and therefore neighborhood qudlity as well as intrinsic site characteristics are more desirable. A,:l these factors combine to produce somewhat higher land values than the population densities would lead us to expect in relatively rich neighborhoods. We estimated the population density ;nd land. value gradients for each sector in Bogota and Cali and emerged with striking results. Tables give the estimates of these gradients along with the R 2 for each estimated regression. The general result is that the exponential function is still a good approximation to the pattern of land values for each sector. The population densities, however, do not do so well. The estimated density gradients are not significantly different from zero in a number of sectors. Indeed, in Cali, sectors 4 and 5 exhibit mildly positive gradients and in - 33 - Table 6a: LAND VALUE AND DENSITY GRADIENTS IN CALI BY SECTOR- Household Land Value 2 Density Mean Income 3 2 h R Index l/ R 3 2 Sector 1 (C.B.D.) 163 Sector 2 212 -0.42 0.69 -0.13* 0.00 Sector 3 84 -0.45 0.73 -0.10* 0.00 Sector 4 58 -0.42 0.69 +0.13 0.11 Sector 5 82 -0.55 0.77 +0.07* 0.02 Sector 6 125 -0.21 0.41 -0.26 0.16 Sector 7 219 -0.86 0.59 -0.13* 0.05 Notes: 1. Percentage of Mean Household Income for the City. 2. For 1979. 3. All coefficients significant at the .01 level except those marked with asterisk (*). Source: Land value data from Velasco and Mier (1980) Population density data from Tabares (1979) Mean income from Pachon (1980) - 34 - Table 6b: LAND VALUE AND DENSITY GRADIENTS IN BOGOTA BY SECTOR Household Land Value 2Density Mean Income Index 1/ _ R h R Sector 1 (C.B.D.) 61 Sector 2 52 -0.15 0.54 -0.11 0.06 Sector 3 74 -0.01 0.09 -0.02* 0.01 Sector 4 96 -0.08 0.46 -0.12 0.09 Sector 5 103 -0.05* 0.03 Sector 6 97 -0.10 0.71 -0.05* 0.02 Sector 7 122 -0.08 0.72 -0.16 0.50 Sector 8 236 -0.07 0.55 -0.14 0.32 Notes: 1. Percentage of Mean Household Income for the City. 2. For 1975-78. 3. * Implies that the coefficient is not sianificant. All others significant at the .01 level. Source: Incomes from Alvaro Pach6n (1980). Land value gradients from Rodrigo Villamizar (1980). Density gradients calculated from City Study barrio file. - 35 - Bogota the density gradients are low or insignificant for sectors 2, 3, 5 and 6. What is common among these sectors is relatively low mean income. Note that land value gradients are not significantly different from others in these sectors. That the population density does not vary appreciably with distance in the South of Bogota is also obvious from Map 1. To understand these phenomena we need to delve a little further into the role of land values and their effect on urban structure. Gregory Ingram (1980) emphasises the role of land as a factor of production. When land values are high, capital is substituted more for land and the result is the construction of taller buildings. We can therefore expect to observe, on average, taller buildings in city centers and in zones where land prices are high. As land prices increase single family homes get replaced by multi-family apartments and residential densities rise. While residential densities rise per unit of land orea, living space per person does not necessarily decrease. These options are not, however, open to the poor. We have observed in the last section that land prices rose more in the outer rings than in the inner ones as expected. A further analysis revealed that the rates of price increases were no higher in the rich areas as compared with the poor (Villamizar, 1980). In Bogota, the rate of increase (adjusted for inflation) in the rich sector, Sector 8, was about 2.5 percent per year between 1955 and 1977 and about 4 to 7 percent per year in the poorer sectors (2, 3 and 6). The price levels, however, were consistently lower in the poor areas. These data indicate that, although each land parcel is non-substitutive to some extent, there is a - 36 - city wide land market that is functioning. While land prices in poor areas continue to be lower than in richer areas there is a catch-up phenomenon so that prices of land parcels equidistant from the city centre are not too dissimilar. The natural result of this phenomenon is that while the rich substitute for land with capital) the poor substitute for land by crowding. Map 3 illustrates the structure of Bogota by average number of floors in each zone. We can observe that much of Bogota still has less than 2 floors; that the number of floors declines rapidly from the c.b.d. and that the Northern part of the city, the rich sector 8 has taller buildings than other areas of the city. Table 7 gives other housing characteristics by residential rings and sectors. The average number of floors declines systematically by ring. It is also of interest that the average age of dwellings declines and that the proportion of single family homes increases with distance. These patterns are very much in accordance with our expectations: capital is being subs- tituted for land in the shape of taller buildings in the inner rings; the city has grown by accretion on its edges and therefore the outer rings have newer houses; apartment buildings or semi-detached houses are replacing single family houses as prices increase nearer the c.b.d. Land prices are performing their function well and the housing market seems to be responding as it would be expected to. Now examine column 5 in Table 7. There is no clear pattern of average dwelling unit space per person except that it is low in the c.b.d. We would expect that living space per person would be larger in the outer rings: people would be trading space for higher transport costs. If we now look at the sectoral pattern it is clear d* mzwm ',2 &bk.& awazz*. 33usassass *sa xasansa tm uussassa:Sa •• za a azasz aMa -e' a# s a asls s 83* z8 zaxxzzzx 3 il«« m3uUaz U zZa .«« 62tzaan:: xxxx *S~ < - - sasa-ssa Mål t"d ••• SI*• •-. m .e• m:a:mssauuas msas as •••a. a*e".*m **.---- --- assmaaa massussmss s"i * s't ••-.-- ., e:masasses augasam • <(<C * b "41 "Sé ---e-. .- asasaa ss aamsuess m a ••• (((((C(C C((( p e**" ""a.--al. ... massa s um asasa esama n. ((((((( (4 ( ••• . a -.-- a au aus UasaaSsaui • ((tCC(((( ((( ua.* * IIm"a"nea as.ss •••••-. s ss ms a aaaaaa (( ((((C(C ((iC I ** """""a as3aas ---- 3saass 33 umssasamai (<((((((( (( (((((( a •• • •••"•• as a asas .-. aussaam a mssaaI:sas (<(((((((( I (((C m~ IBII. 3i *33 33383 .•• am muus aassaas m ( (((((((( ((CCs usspss a3a :33 ( -- asass s sasaass -•••• ((<(( t( • • "•• •• sanaag:a a (((( casaaaa assanna *m••••--- (( *•ee,smIalus asa::a ,((((( sax:ausa *M aa •-w- ••.•a1i*ebisIas asa a((((( ((( suc:an 1OMe * xxx m-ssetmabsss ee'a'see ebesae. .ms(((( (((( 333 §§MM XXxxXxxx s•• (((( '8•SIBeSeissI Ma4sae ase .xxxxxxxxxx enma~ UW Mt<(C å$11 XXXXXXXXXXXXXX <(< ce0 * A'Uates• n 38s838 (((((((((C i 000 m xxxXXXXX XxxXX ((((((((( •••••• *~** * "'• ---..--s e •~ (((CC liit Øt xxxxxxxxxxxxxxx --e ((((((( ••s ----- -ø - - -- 0 mami xxxxxx x xx s • xx x •••.---------••- - • titaittxxxxx xxxxxxx ae* Xxxxxx --X----••---••• 0008006$§ XXXXX c*=*in Zita xxxxxxxxxx . .-------- &-~---- et ~~~ A hul lJ(XX XXAAAXX aase assxxxxx X••••e -----C-sss---------- * ~ ~ .101011 Bl »XXX~saSgs aaas XXXXXXX sss..smu..mms 8 0AAAAAAA sassas133*a xxx - ---- • 1013130 I mmmii •SS •• 3 •3•3 X--------- *5U5kæ5ssasss.5sss.esas * mmoihiamuumummad ad 4,. illiIilil •••---- un •••.-6maff- i susastaaasasaaam I 5 »»5 *.susn. *s-**ms-eam- ssasa sasassesamsagg I i 05us5seM-O ------------- 383333:ssaasaasasg I .555 k-..suS.es-e Ia:usassa*asassessam * US 5*55~a •• 33a33assassaamm 0 *5UtmU55U3353333333s3g3 - 38 - Table 7: THE SPATIAL PATTERN OF HOUSING IN BOGOTA 1978 Mean % Average Average Average Household Single Dwelling Number Dwelling Income Family Unit of Unit Space Index Unit Age Floors per Person (years) (m2) 1 2 3 4 5 Ring 1 62 39 16 7.1 14 Ring 2 116 57 21 3.5 23 Ring 3 124 74 16 2.8 30 Ring 4 112 86 12 1.7 23 Ring 5 82 95 9 1.8 18 Ring 6 122 100 8 1.5 26 Total 100 85 12 2.1 21 Sector 1 61 39 16 7.1 14 Sector 2 53 96 13 1.4 12 Sector 3 74 91 10 1.8 19 Sector 4 96 91 11 1.9 25 Sector 5 103 72 18 3.4 20 Sector 6 97 92 10 2.1 21 Sector 7 122 84 17 1,9 30 Sector 8 236 59 10 2.9 45 Total 100 85 12 2.1 21 Source: Sungyong Kang (1980). Household Income Indexes from Alvaro Pach6n (1980). - 39 - that the poorest sectors (2 and 3) in the South have much less living space per person than the Northern rich secturs. Thus, as mentioned above, the poor are substituting crowding for land and the rich capital. We now begin to understand why the land value gradients ho7i up even when the cities are disaggregated into sectors and the density gradients do not. The functioning of the land market results in land values being not too different at similar distances from the centre. The rich sectors have higher land values on account of better employment opportunities as well as neighborhood quality and infrastructure quality. The land values being relatively regular, the poor have no choice but to substitute for land by crowding. Even when they slide down the rent gradient and locate at the periphery, they still have to live at high densities to compensate for the land prices which are similar to land prices in the rich suburbs. They cannot buy more space by substituting capital for land since the housing would then be too expensive. Note in Table 7 that the average number of floors is 2.9 in the rich sector 8 and only 1.4 to 1.8 in the poor sectors 2 and 3. The result is that we observe high population densities on the periphery of some parts of the city and consequently there is virtually no measurable density gradient in those sectors of the city. The rich sectors still have a density gradient and we can therefore observe gradients for the city as a whole as well. Non existent density gradients in some sectors of the city are consistent with relatively strong land value gradients. We have therefore resolved the paradox posed at the beginning of this section. In so doing we also provide reason for caution in interpreting similarities between city wide population density and land gradients. - 40 - There is one other important aspect of land value patterns meriting further discussion. We have alluded often to the importance of the level of economic activity in a zone to the determination of land values. We have focused on the predominance of the c.b.d. as the economic hub of the city. As a large city grows, however, a city acquires many new competing commercial centers which begin to rival the old c.b.d. These alternative (or additional) economic centres are in turn strong motivating forces for residential population to decentralize as well. We examine this process by looking at the evolving land value peaks along key urban corridors in Bogota. Fig. 6 gives a pictorial representation of this process. The street system of Bogota in a systematic grid conforming to old Spanish urban planning tradition. "Carreras" or avenues run North to South and are numbered in ascending order away from the mountains toward.the West. "Calles" or streets run East-West and are numbered from the c.b.d. in ascending order toward both North and South. Figure 6 gives the trend of land prices over time at fixed ranges of key corridors in Bogota. As an example note the pattern of Carrera 7a in the bottom right hand corner of Figure 6. Carrera 7a runs through the c.b.d. of Bogota which is around Calles 7 to 20. Observe that the prices around the old core i.e. between Calles 7 to 17 have been decreasing secularly while those in the range of calles 27 - 45 have been tending to increase. The mid range calles 14 - 26 have kept relatively stable. The commercial 1/ For a more detailed analysis, see R. Villamizar (1980). 州 42 - centre of Bogota has been tending to move northwards.-!/ Thus the position of the region between calles 20 to 45 has improved relative to the old core. Observe also the land value peaks around calles 46 - 60 on Carreras 13 and 14. This is the Chapinero area which originally-started to develop in the fifties and has since been an important commercial and shopping centre, competitive with the c.b.d. This detailed analysis along ridges of the land value surface reveals small hills in accordance with the access characteristics which go along with higher levels of economic activity in the developing sub-centers of a rapidly growing city. It is because of such developments that the gradient of land prices decreases as a city grows: the relative importance of the c.b.d. declines and secondary gradients develop around the sub-centers. We therefore confirm the fourth result from our simple urban model: as a city grows the smooth land price surface centered around the c.b.d. develops wrinkles as ridges, valleys and small hills around the new sub- centers that are observed in Bogota. Mills and Song (1979) found that in Korean cities commercial land values were always higher than residential land values in the c.b.d. as well as in the rest of the city at equidistant points from the centre. The evidence presented above is consistent with their findin-s. Indeed, at equal distances from the c.b.d. the proportion of area covered by commercial activity in any neighborhood is a good predictor of the level of land values in that area. These results are quite consistent with our expectations about access characteristics of neighborhoods and, moreover, with the observed higher land values in richer areas of the city. As mentioned earlier, more commercial activity locates itself in the rich areas of the city. l/ For a historical description of this process see Wiesner (1980). -43- IV. Rising Land Prices: Should We Worry? A detailed examination of land value and density patterns in Bogota and Cali has revealed that the evolution of these patterns has neither been chaotic nor unpredictable. Land values have responded to the rapid growth of these cities much as they might be expected to in a market economy. Growth in land values has been the gweatest at the periphery of these cities and least at the centre. Furthermore, land values in poor areas have ir.creased as fast as, if not faster than those in rich areas. These results are somewhat surprising in the presence of a widespread impression in Colombia, as in other developing countries, that land prices in cities have been growing in recent times at undesirably high and unwarranted rates. The paradox of our results is that these impressions are not necessarily misinformed. People tend to focus on the growing or developing parts of cities. It is undeniably true that it is precisely these areas which experience the greatest magnitude of change: as they should in a market economy. It is also true that many people make large windfall gains in these areas. The issue to worry about is then of income distribution. Does the land market operate in such a way that it widens the already high levels of inequality that exist in many poor countries? The answer to this question will obviously depend on the specific circumstances in every city or country. We have little information on the concentration of ownership of land in these cities. Ingram (1980) has presented some information on the concentration of developers in the legal housing market in Bogota. He concluded that there does not appear to be a high level of con- centration in this market. Elsewhere (Alan Carroll, 1980) there is also -44 - evidence that the illegal housing market is not concentrated either. The process of development at the edge of a city (where the largest rates of price increases are observed) appears to go through a number of stages. When land is in agricultural use, we naturally expect plots of land to be much larger than characteristic urban plots. In Bogota and Cali, many tracts of land at the edges of the two cities were certainly very large. In such situations there is an element of local monopoly power: but the land offer price cannot be too much out of line as compared with other comparable areas otherwise the developers would rather move there. The norm in Bogota is that the original owners sell to developers (illegal or otherwise) who then subdivide the tracts and then sell to individuals for housing. Alan Carroll (1980) has shown that there is little evidence that the intermediary developers-get excess profits as compared with usual rates of return on investment in Colombia. He does show, however, that there are some who do make very large profits: these are, perhaps, the more visible ones. Despite the windfall gains that occur at various stages of the development of peripheral locations around a city, it is very likely that the process of subdivision leads to much more equality in the ownership of land. To the extent that the new owners are relatively poor and that the process of a city's growth is such that it is accompanied by large land value 'increases at the periphery, there is a high likelihood that much of this increase accrues to the poor. This may be the case despite the large windfall gains that may accrue to the original owners. These.ideas are somewhat speculative but we do have adequate information that is at least suggestive in these directions. Illegal housing activity consistently appears to account for about 60 percent of all residential housing construction - 45 in Bogota (Kang, 1980); land values have risen as much (or more) in poor areas as in rich areas; the proportion of owner occupied housing increases as one moves toward the periphery; while the poorest do not in general live on the periphery, the outer rings are somewhat poorer on average. Consequently, urban land is probably one of the few assets that the poor have relatively better access to. These remarks are not meant to imply that all is well in Bogota and Cali: but we do imply that things may not be as bad in the land market as is often supposed. Indeed, our evidence on density patterns indicates that all is not well. The extremely high densities in poor areas, especially peripheral areas,mean that for large numbers of the poor, the only way they can afford to live in-the city is under extremely crowded conditions. Health problems result from such crowding accompanied by poor infrastructure provision (which is likely in these cases). The choices in these situations are difficult. The more infrastructure that is provided like roads, water supply, sewerage and electricity, the higher the resulting price of land and consequently higher the density (crowding) that would result. On the other hand, without infrastructure provision, health problems would increase-- despite less crowding. Much higher densities were observed in American and European cities before the advent of mechanized transportation but their health problems were also worse. In the early stages of industrialization, the net natural growth rates of European cities were often negative. They were able to grow only because of high in-migration rates (Toynbee, 1970 and Weber, 1967). Because of general health measures, conditions in cities in poor countries are clearly not as bad but we should be alert to the dangers 4.46 of over-crowding. In that sense, we should worry about high land prices but the source of our concern should be clear. If it is the access of the poor to shelter that we are concerned about, policy measures should address these problems directly. It may be the case that subsidized or free access to land in the nature of squatters rights is the best feasible solution to this problem. It should then be recognized as such and the opportunity cost of that land should then be viewed as the cost of such a policy. Cognizance should also be taken of the price of land as a signil for the allocation of resources. This is not the place for a discussion of appropriate land policies. Our objective has been to provide an understanding of the role of land values in the growth of cities by providing evidence from two rapidly growing cities in Colombia. We hope that similar empirical work can be accomplished in other cities so that appropriate urban land policies can be designed. Objectives of these policies should be made clear: are urban land policies concerned with appropriate urban structure; with providing access to housing for the poor; with achieving a better income distribution? In any case, what must be remembered is (to paraphrase Mills and Song (1979) slightly): land price controls can obscure the value of land but they cannot change it. - 47 - APPENDIX MapNo.. A.la BOGOTA: Ring System A.lb BOGOTA: Sector System A.2a CALI: Ring System A.2b CALI: Sector System Map A.la Map A.lb BOGOTA: Ring System BOGOTA: Sector System N N 91 91 55 6s55 \\h3 . \ \1, \ .'rPA •Y193 24 2z 22 g \P•IT2 \1 2 Map A.2a Map A.2b CALI: Ring System CALI: Sector System -0,4 i6 ii- -- - -- - - I - 50 - REFERENCES Carroll, Alan, "Pirate Subdivisions and the Market for Residential Lots in Bogota," Washington, D.C., The World Bank, City Study Project Paper No. 7, 1980. Harrison, D. and Kain, John F., "Cumulative Urban Growth and Urban Density Functions," Journal of Urban Economics, Vol. 1, 67-98 (1974). Ingram, Gregory K., "Land in Perspective: Its Role in the Structure of Cities," Paper Delivered at World Congress on Land Policy, Cambridge, Mass. (1980). Ingram, Gregory K. and Carroll, Alan, "The Spatial Structure of Latin American Cities," Journal of Urban Economics (forthcoming), (1980). Jackson, Kenneth J., "Urban Deconcentration in the Nineteenth Century: A Statistical Inquiry," in Leo Schnore (ed.), The New Urban History, Princeton: Princeton University Press (1975). Kang, Sungyong, 'Housing Stock in Bogota: A Descriptive Study," Washington, D.C., The World Bank, (mimeo.), (1980). Lee, Kyu Sik, "Intra-Urban Location of Manufacturing Employment in Colombia," Washington, D.C., The World Bank, City Study Project Paper No. 5, 1979. Lichfield, Nathaniel, Settlement Planning and Development: A Strategy for Land Policy, Vancouver: University of British Columbia Press, 1980. Mitchell, B. R., European Historical Statistics, 1750-1970, New York: Columbia University Press (1978). 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"Automobile Ownership Bogota and Cali," 1972-1978, Washington, D.C., The World Bank, (mimeo.), City Study Workshop, February 1980. Tabares, Henry, "Poblacion de Cali: Series Hist5ricas y Caracter'sticas," Cali, Colobbia: Planeacion Municipal, PIDECA Document No. 3, 1979. Terrell, Katherine, "Workers of Cali: Who They Are, What They Do, and Where They Live," Washington, D.C., The World Bank, City Study Intermediate Paper No. 37, 1980. Toynbee, Arnold, Cities on the Move, New York: Oxford University Press, (1970). Velasco, Juli5n A. and Mier, Gilberto R., "Valores'y CaracterIsticas de la Tierra en Cali," Cali, Colombia: Planeaci'n Municipal, 1980. (mimeo.) Villamizar, Rodrigo, A., "Land Prices in Bogota Between 1955 and 1978: A Descriptive Analysis," Washington, D.C., The World Bank, City Study Project Paper No. 10. Weber, Adna F., The Growth of Cities incthe Nineteenth Century, Ithaca, .New York; Cornell University Press, 1967. Wiesner, Guillermo, "Cien Aios de Historia de los Precios de la Tierra en Bogota 1878-1978," Bqgota: Corporaci6n Centro Regional de Poblaci6n, CCRP City Study Paper No. 3, 1980.