Geography Reference
In-Depth Information
cert tickets, the price rises. This
competitive bidding
for downtown real estate drove up land
prices in that area relative to other parts of the city. As a general rule, competitive bidding for
land generally decreases as distance from the urban center increases. As a result, land values
tend to “peak” downtown and then decrease as distance from the CBD increases — sharply
at first, and then more gently (as illustrated by Figure 15-10). Geographically, therefore, land
values exhibit a gradient that declines from the CBD to the periphery of the city. The trend line
is often called the
rent gradient
, even though land purchases rather than renting
per se
is the
predominant financial transaction.
Tall buildings
The quintessential result of the downtown peak in the rent gradient is tall buildings. And for good
reason. Suppose you have just purchased land downtown and borrowed a hefty amount of money
from a bank to do it. Now you've got a loan to pay off, along with its accruing interest. Also, given
the high price you paid, you can bet your last dollar (if you have one) that the annual real estate tax
on your property will be through the roof (if you can afford one).
How can you cope with this predicament and make a tidy profit to boot? Create as much floor space
as possible on your property and rent it out to businesses that will pay a pretty penny to locate down-
town. And the way to create that floor space is to go vertical — that is, build as many stories (thereby
creating as much rental space) as you and your bankers deem feasible. In most cities, you find some
tall buildings that are not downtown, but the rent gradient usually guarantees that the CBD will have
the highest concentration of them, an example of which is shown in Figure 17-4.
Figure 17-4:
Tall
buildings express
the rent gradient
that peaks in
downtown Chica-
go.
Residential areas
