Location is an ancient factor of growth-Twin Cities
The buildings along the University Avenue of São Paulo are very hot. Yes, this is a trend ten years ago, but now the number of new buildings is staggering. Most of these developments originated from the Metro Green Line that opened in 2012, which connects Minneapolis and downtown St. Paul.
The construction of a place is not an isolated case. It has always happened in the suburbs. Streets and large shopping areas have sprung up on long-vacant land, as have hundreds of houses and apartments of different types. The difference between University Avenue is that it has been active in the city for about 150 years.
Applied economic theory is obvious in all these areas, whether it is basic demand and supply, or location economics. The green line plays an important role here. But it started with the insights of Johan von Thunen, a German real estate manager from 1783 to 1850, when there was no extensive railway construction here or in Europe.
Von Thunen lives in Pomerania, a vast area of ??arable land near the Baltic Sea. He pointed out that the types of agricultural products and the value of land vary with the distance from the market city. In other words, what is important to landowners is location, location, and location.
The concentric circles closest to the city center produce fresh milk, vegetables and the like, which are of high value but are perishable. The successive emergence of land circles include wood planted for construction and firewood. Although not of high value, it is expensive for carriage by carriage. Then there are storable fruits such as apples and root crops such as potatoes or radishes, which can be kept for months after harvest and allowed to be hauled over time.
Rye and wheat are more storage-resistant and therefore grow farther. Butter and cheese are higher-value products, but dairy herds need vast pastures. The same is true for beef cattle, which can be driven to the city itself for slaughter.
The price of land increases with the value of the product and decreases with the transportation cost.
Even in a product area, land prices will drop with distance. Consider a cart of rye. Closer, it is mainly grain and some horse feed. As the distance increases, more feed is needed and therefore less grain is needed. The round trip is longer than a horse can complete in a day, which means using carriage space to store sheets, kettles and potatoes for the driver.?? The overall result is that two different farms with the same agronomic productivity will get different net income from the same crop due to different transportation costs. Therefore, their land value will be different.
Fast forward to modern São Paulo.
Along the Green Line, the construction of new apartments is affected by at least two factors: the distance from the city center and the cost of land and existing buildings that must be razed. From downtown to downtown Minneapolis, denser housing around the University of Michigan means more expensive land. But from Snelling Avenue East to Rice Street in Sao Paulo, there are already many car sales locations. Those that were enough in the 1950s were too small for modern dealers after 1980, so some people with “Midway” in their names moved to Roseville or their fathers went out.
In the urban area, land values ??and apartment rents vary with the distance from the Green Line station. People want to live near the light rail because they do not have a car, or they want to face traffic congestion during peak hours for work or shopping. In the suburbs of Buffalo, Bel Plain or Baldwin, rents and house prices may be lower, but the money saved is wasted on hundreds of hours of driving by city workers and thousands of miles of car wear and tear.
Factors other than distance can lead to different land prices or rents. When real estate agents talk about “location”, they not only refer to the distance to work or shopping, but also countless other factors, such as public safety, environmental noise, school quality, clean air, parks, etc. They can be classified as “convenience” Facilities.” Economists may see these as “complements” to the core products of residential areas.
There are almost no supermarkets between the two city centres, so a short walking distance is a plus. The same applies to trendy hardware stores or delicious breakfast places. Therefore, razing all existing buildings to form a complete apartment forest will reduce the overall appeal of living there, thereby reducing rents and land prices.
However, individual developers are affected by the “common pool resource” problem, which prevents one from being frugal, while others are not. Therefore, reasonable zoning can protect the quality of life of residents and the value of the landlord.
Playgrounds and schools are very important to the Beaver Cleaver family model. But social values ??and customs will change. Consider the birth rate and family building: Three years ago, when teaching development economics, it was necessary to eliminate the student’s notion that access to modern contraceptives was the only factor in the rapid population growth of poor countries. Catholic Ireland may have banned the sale of all contraceptives, but the birth rate was very low. This is because the “average age at first marriage” in Ireland is 29 years for women and 33 years for men. In our country, at the peak of the baby boom, the lowest death rates for women and men are 20 and 22, respectively. By the mid-1980s, these numbers had increased by about a year. My student at the time graduated in a few months. Many people got engaged and made faces at the idea of ??delaying marriage and childbirth for another ten years.
The average level in the United States now exceeds the level of Ireland 40 years ago. For the daughters of women born in this country, the crude fertility rate or the number of children per woman in a lifetime is much lower than the population replacement rate. Therefore, access to good schools and parks is still important, but for young renters and first-time buyers, it is more important than before.
Things can go in another direction. COVID is accelerating many changes, including working from home and studying. Maybe if there is no daily commute, the distance to the town will become less important, just like using the green line-but access to a reliable internet becomes essential, so it is included in the road and light rail in today’s infrastructure debate .
However, consideration of these developments does not seem to deter developers in central cities. In the era of von Tunan, the railway was a similar “exogenous shock”. Both the absolute value and the relative relationship between them, the production and development model, and the value of land changed. Because of this transportation revolution, the American West and Midwest will be occupied by people of European descent. The place and the way we live today are still affected by this.
One can also analyze the current building from the perspective of changing “supplements” to “demand transferors”. These are external variables that affect people’s potential demand, which is the internal relationship between each of the many possible quantities purchased within a matching possible price range. But this in itself is a big wax ball.
The contact information of Sao Paulo economist and writer Edward Lotman is [email protected].