Rent of urban land is dependent upon different amenities, like access to roads. A piece of land that is ideally locally near downtown, or near a subway station will have a higher rent than a similar sized land that is away from downtown or a subway station. David Ricardo came up with the idea that agricultural land rent is dependent upon its fertility. Similarly, we can interpolate that the more ideal a land's location is, the higher will be its rent.
The rent price per acre is the total revenue, less the various capital, transportation and production cost, divided by the area of the land in acres. Thus, if one of the costs of production is higher, it will cause land rent to decrease.
When land is plentiful, there is no need to build a skyscraper because cost of building a skyscraper exceeds the rental savings from using large amount of land to build low rise buildings.
Spatial Distribution of Jobs
How jobs are distributed in a city can affect the density of buildings in an urban area, and vice versa. In some cities, like Boston and Portland, there is one city center where there is most jobs. So most commute is from the suburbs to the city center. With the rise of rent in city centers, many offices find it too expensive to stay in downtown. Some firms may migrate to outside the city boundaries, or to suburbs. This can increase the density of employment in some suburban areas - leading to the creation of edge cities. These edge cities are typically near the highway and have different manufacturing and services industries serving the main city. For example, Los Angeles, Chicago, and to some extent, New York have a number of edge cities surrounding them. In some cases, like Los Angeles, there is a fall of mono-centric city, mainly due to the rise in urban sprawl and the move of factories from city centers to places where land and labor is cheap.
Some factors that led to the rise in urban sprawl are:
1. the low price of negative externalities like congestion
2. mortgage subsidies
3. low prices of different amenities outside of cities
4. different zoning regulations
As land is plentiful in the US when compared to other countries, cities in the US are less dense than cities around the world.
Spatial Distribution of People in Cities
Because land prices are high in certain parts of the city compared to others based on amenities, one sees the rise of segregation based on race and income. For example, Du Bois noted in Philadelphia that the 7th Ward is where most of the African Americans lived in the early 1900s, and the living conditions were squalid. Right outside the 7th ward, the wealthier African Americans lived, and most of them were born in Philadelphia. Because of discrimination, an African American in early 1900s was not able to get good employment, no matter how qualified he/she is. Du Bois also mentions that African Americans faced problems in social interactions with the general population, educating their children and finding good place to live because of discrimination.
Although overt discrimination is unlawful now in the US, years of segregation and social exclusion have made some areas in cities and its inhabitants unable to rise up the economic ladder. The more segregated a city is, the more social and economic problems it can have. As economists, we are interested to measure the level of segregation in a city. One simple measure of fractionalization is 1 minus the sum of squares of the fraction of individuals in different ethnic/linguistic group.
There are other measures of segregation, like the 'index of dissimilarity' by Cutler and Glaeser (1997). Using this measure of dissimilarity, Cutler and Glaeser (1997) show that African Americans living in segregated communities are worse off than those not living in segregated communities. However, they do not find a similar effect on whites.
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