Empirical support for a theory of spatial capital: Housing prices in Oslo and land values in Gothenburg

Paper in proceeding, 2019

Land is, besides labour and capital, one of the classic production factors in economic theory. However, neoclassical economics dominating the 20thcentury, simplified production theory to only labour and capital, treating land either as just another form of capital or as the natural resources it harbours. This hides the central role of land – in the meaning of spatial extension and location – for contemporary economies, where land rent is an essential cost and location a productive factor for most economic activities, not least since these increasingly are located in cities. Critical here is the confusion often found concerning property values and the distinction between land and improvements, the latter most often constituted by buildings, where buildings quite naturally can be treated as capital, while land cannot. Importantly, while property value can be increased by its owner through improvements, such as new buildings, she is very limited in influencing the land value, since this is a collective variable dependent on the economic development of the city as a whole. It is here proposed that improvements on land in contemporary urbanised economies to a dominant degree concern systems of centrality and accessibility generating relative locations, that are further enhanced by buildings and land division, and that this constitutes what is proposed to be called a spatial capital, which to a large degree is created through the practices of urban planning and design.
In this paper we investigate the dependency of spatial form on land value. First, we review how spatial form and the configurations of accessibility it generates on land, influences housing prices to find support for the intimate relationship between relative location and monetary market values. Second, we investigate the dominance of land values compared to improvement values in four Swedish cities of different size Third, we investigate how known parameters of spatial form correlates with land values in Gothenburg, Sweden. We see close associations between spatial form and land values, both in shape of market housing prices and as property taxation values. Land value holds a larger share of total property taxation value in larger cities, suggesting that relative location is valued higher where economic activity is greater. Furthermore, we find clear correlations between spatial form and land taxation values. Altogether, these findings indicate that spatial capital encompasses monetary value. In extension, these findings also indicate how knowledge based and skilful urban planning and design can create measurable value.