Property Valuation, 3rd Edition

Chapter 2The Economics of Property Value

2.1 Introduction

Valuation practice tends to focus on the estimation of market value or value‐in‐exchange, but increasingly, there is a need to consider a broader concept of value. The value of natural resources and ecosystem services (often referred to as natural capital), the value of land and property rights that do not trade in markets (as defined in western economies), and the value of environmental, social, cultural, religious, and spiritual assets more generally are of growing interest to many stakeholders around the world.

This chapter explains the economic principles that underpin property value and how these can be revealed in markets. It describes how property is different from other tradeable commodities due to its fixed location and intensity of use. The chapter explains the economic motives of market participants, such as landowners, developers, occupiers and investors. It then considers concepts of value outside of the market.

2.2 Land as a resource

Land (and the property rights that determine its occupation and use) is a resource that can be combined with other resources to produce goods and services that consumers desire. Economists refer to these resources as factors of production to emphasise that various factors need to be combined to produce goods or services. The factors of production are usually classified into three groups; land, capital, and labour, and sometimes entrepreneurs are specifically identified as ...