Jack Harvey

The Location of Production

This chapter looks at the advantages which industries enjoy by being situated in particular localities. These are summed up in Figure 9.2, and you should note them carefully since together they determine the pattern of land use. What results is a territorial ‘division of labour’.

Functions of the Real Property Market

While a fuller description of the characteristics of the various types of property interests is given in Chapter 5, it is useful to indicate here the main categories: (1) Freeholds (FHs) involve the holder in the full financial risks of ownership. Thus if rents rise through inflation, a freehold interest provides a hedge against inflation. (2) Leaseholds occur where a freeholder grants a lease for a number of years, during which time he parts with some of his equity interest in exchange for a premium and/or for a regular fixed money income. Thus leaseholds are equivalent to fixed money interest-bearing bonds, though they assume a greater equity interest as the lease nears its reversion date. (3) Freehold ground rents (FGRs) are paid on long leases of undeveloped land. Certainty of payment means that FGRs are similar to an investment in gilt-edged securities. (4) Mortgages are long-term money loans against the security of property. Since interest and capital repayment in money terms are fairly certain, mortgages can be regarded as almost equivalent to debentures and medium-term government bonds.

The Timing and Rate of Redevelopment

Where land is already developed by having a building on it, fixed capital is embodied in the land. Such capital has no cost in the short period; as a result, redevelopment to a new use, which requires expenditure of further capital, usually occurs only after a considerable period of time.

Land Use and Land Values

Urban land use is determined by the various decisions made by firms, households and the government (primarily local authorities). Firms occupying shops, offices and factories have on occasions to decide whether to expand and, if so, whether to move or redevelop the existing site. Moreover, in a dynamic economy, new firms come into being and have to choose where to locate. Similarly, households decide where to live, and if many people move in a particular direction – for example, to the suburbs – it profoundly affects the character of urban land use. Finally, government authorities influence land use through the control of development, overall transport policy and the siting of roads, and by local authority house-building and comprehensive redevelopment.

The Growth of Urban Areas

Cities begin for many reasons: for example, defence, trade or as political or religious centres. Whatever the reason, economic forces are likely to reinforce the original impetus. Initially growth was associated with industrialisation which induced more intensive use of existing buildings, changes in their use and outward expansion.

Theory of Urban Public Finance

As we saw in Chapter 19, in order to secure allocative efficiency, stability and an equitable income distribution, the government has to intervene in the market economy by administrative regulation, such as rent control and anti-monopoly measures, or by simply influencing relative market prices, for example, through indirect taxes and subsidies. Alternatively, the government may itself provide certain goods and services.

The Incidence of Taxation on Land Resources

As we have seen, legislation has an impact on the real property market. This is true even of legislation of a general nature. For example, the Monopolies and Restrictive Practices Act 1948 permits an investigation of tendering practices (for example, in the construction industry); the Health and Safety at Work Act 1974 applies safety requirements to commercial and industrial buildings, and the Wildlife and Countryside Act 1981 provides for the designation of Sites of Special Scientific Interest (SSSI).

How Price is Formed in the Free Market

This is one of the most important chapters in the book. Those sections dealing with demand, supply and price provide the basic tools for analysing all problems concerned with the allocation of resources between different uses. Look upon diagrams as an aid to analysis and a means of expressing ideas. Not until you use demand and supply diagrams instinctively when appropriate can you regard yourself as being fully competent in this branch of theory.

Foreign Exchange Rates

The foreign exchange rate is a price—the price at which one country’s currency exchanges on the international market for another country’s. As such, it is determined by demand and supply—the amount of that currency being wanted and the amount of it being offered for sale. Since the market is a perfect one, differences in price are eliminated quickly and easily throughout the world. The main difficulty is that the price of one currency has to be expressed in terms of the other. Thus the price of the pound sterling is about 1.50 dollars.

The Distribution of Goods to the Consumer

Few manufacturers themselves undertake the task of selling goods to the final consumer. Instead there is vertical disintegration of distribution, firms specialising in this stage of the productive process.