<s>
ntroduction_NN1 Land_NN1 is_VBZ a_AT1 key_JJ factor_NN1 of_IO production_NN1 in_II the_AT assembly_NN1 of_IO property_NN1 ._. 
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This_DD1 essay_NN1 will_VM first_MD examine_VVI the_AT supply_NN1 and_CC demand_VVI for_IF land_NN1 and_CC housing_NN1 ,_, as_CSA this_DD1 helps_VVZ to_TO explain_VVI how_RRQ the_AT market_NN1 for_IF land_NN1 and_CC housing_VVG works_NN and_CC how_RRQ prices_NN2 are_VBR determined_VVN ._. 
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The_AT second_MD part_NN1 of_IO the_AT essay_NN1 will_VM discuss_VVI how_RRQ land_NN1 prices_NN2 are_VBR calculated_VVN ._. 
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Supply_VV0 Land_NN1 as_II a_AT1 whole_NN1 i.e._REX the_AT earth_NN1 's_GE land_NN1 surface_NN1 ,_, can_VM be_VBI regarded_VVN as_II being_VBG fixed_VVN in_II supply_NN1 ._. 
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(_( Harvey_NP1 and_CC Jowsey_NP1 ,_, 2004_MC )_) However_RR ,_, although_CS the_AT total_JJ amount_NN1 of_IO land_NN1 in_II a_AT1 country_NN1 is_VBZ fixed_VVN ,_, this_DD1 is_VBZ merely_RR the_AT stock_NN1 of_IO land_NN1 ._. 
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<s>
Many_DA2 factors_NN2 influence_VV0 the_AT incentive_NN1 to_TO trade_VVI and_CC the_AT amount_NN1 and_CC price_NN1 at_II which_DDQ it_PPH1 is_VBZ traded_VVN ._. 
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There_EX will_VM be_VBI variations_NN2 in_II the_AT flow_NN1 of_IO land_NN1 traded_VVN in_II the_AT market_NN1 at_II any_DD given_JJ period_NN1 of_IO time_NNT1 ._. 
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Therefore_RR ,_, Warren_NP1 (_( 2000_MC )_) states_VVZ that_CST ..._... 'when_NN1 looking_VVG at_II development_NN1 land_NN1 ,_, one_PN1 should_VM not_XX expect_VVI there_RL to_TO be_VBI perfectly_RR inelastic_JJ supply_NN1 ._. '_" 
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The_AT supply_NN1 of_IO housing_NN1 is_VBZ primarily_RR inelastic_JJ at_RR21 least_RR22 in_II the_AT short_JJ run_NN1 ._. 
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This_DD1 is_VBZ partly_RR because_CS the_AT existing_JJ housing_NN1 stock_NN1 is_VBZ so_RG large_JJ that_CST any_DD additions_NN2 to_II this_DD1 stock_NN1 are_VBR likely_JJ to_TO be_VBI insignificant_JJ in_II31 relation_II32 to_II33 the_AT overall_JJ number_NN1 of_IO houses_NN2 ._. 
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Also_RR ,_, there_EX will_VM be_VBI a_AT1 significant_JJ time_NNT1 lag_NN1 in_II the_AT process_NN1 of_IO getting_VVG new_JJ houses_NN2 onto_II the_AT market_NN1 ._. 
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Therefore_RR ,_, any_DD change_NN1 in_II demand_NN1 will_VM cause_VVI large_JJ fluctuations_NN2 in_II price_NN1 ._. 
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In_II research_NN1 carried_VVN out_RP by_II Barker_NP1 (_( 2004_MC )_) it_PPH1 was_VBDZ found_VVN that_CST in_II the_AT UK_NP1 there_EX is_VBZ a_AT1 'weak_NN1 response_NN1 of_IO housing_VVG supply_NN1 to_TO demand_VVI changes_NN2 ._. '_" 
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There_EX is_VBZ also_RR growing_JJ evidence_NN1 of_IO a_AT1 persistent_JJ inadequate_JJ supply_NN1 ._. 
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Planning_VVG policy_NN1 has_VHZ a_AT1 very_RG influential_JJ effect_NN1 on_II the_AT availability/_NN1 supply_NN1 of_IO land_NN1 ._. 
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A_AT1 piece_NN1 of_IO land_NN1 that_CST does_VDZ not_XX have_VHI planning_NN1 permission_NN1 for_IF development_NN1 will_VM be_VBI worth_II much_DA1 less_DAR than_CSN the_AT same_DA piece_NN1 of_IO land_NN1 which_DDQ has_VHZ planning_NN1 granted_VVN for_IF a_AT1 development_NN1 e.g._REX a_AT1 house_NN1 ._. 
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If_CS planning_VVG permission_NN1 has_VHZ been_VBN granted_VVN for_IF a_AT1 development_NN1 which_DDQ is_VBZ even_RR more_RGR profitable_JJ e.g._REX a_AT1 block_NN1 of_IO luxury_JJ flats_NN2 ,_, the_AT value_NN1 of_IO the_AT land_NN1 will_VM be_VBI even_RR greater_JJR ._. 
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So_RR ,_, the_AT use_NN1 of_IO the_AT land_NN1 determines_VVZ its_APPGE value_NN1 ._. 
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<s>
Demand_VV0 Demand_NN1 for_IF building_NN1 land_NN1 is_VBZ a_AT1 derived_JJ demand_NN1 ._. 
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<s>
Land_NN1 is_VBZ demanded_VVN because_CS the_AT developer_NN1 or_CC individual_NN1 wants_VVZ to_TO build_VVI on_II it_PPH1 and_CC expects_VVZ to_TO sell_VVI the_AT completed_JJ development_NN1 at_II an_AT1 acceptable_JJ profit_NN1 ._. 
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<s>
Therefore_RR ,_, the_AT price_NN1 that_CST developers/builders_NN2 are_VBR willing_JJ to_TO offer_VVI a_AT1 land_NN1 owner_NN1 is_VBZ dependant_JJ upon_II the_AT state_NN1 of_IO the_AT market_NN1 for_IF completed_JJ dwellings_NN2 ._. 
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This_DD1 graph_NN1 shows_VVZ the_AT supply_NN1 and_CC demand_VV0 curves_NN2 for_IF housing_VVG and_CC land_NN1 ._. 
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<s>
When_CS there_EX is_VBZ a_AT1 boom_NN1 in_II the_AT housing_NN1 market_NN1 ,_, house_NN1 builders_NN2 will_VM realise_VVI that_CST as_CSA demand_NN1 is_VBZ high_JJ ,_, they_PPHS2 could_VM build_VVI and_CC sell_VVI more_DAR houses_NN2 at_II higher_JJR prices_NN2 ._. 
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<s>
They_PPHS2 will_VM look_VVI around_RP for_IF more_RGR available_JJ building_NN1 land_NN1 and_CC consequently_RR the_AT demand_NN1 for_IF building_NN1 land_NN1 increases_NN2 and_CC land_NN1 prices_NN2 rise_VV0 ._. 
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<s>
House_NN1 prices_NN2 rise_VV0 from_II P1_FO to_II P2_FO due_II21 to_II22 a_AT1 rise_NN1 in_II housing_VVG demand_NN1 from_II D1_FO to_II D2_FO ,_, The_AT amount_NN1 of_IO houses_NN2 built_VVD rises_NN2 from_II Qh1_FO to_II Qh2_FO and_CC the_AT number_NN1 of_IO hectares_NNU2 of_IO land_NN1 rises_VVZ fromQl1_FO to_II Ql2_FO ._. 
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Land_NN1 prices_NN2 are_VBR bid_VVN up_RP from_II P1_FO to_II P2_FO to_TO get_VVI land_NN1 owners_NN2 to_II part_NN1 with_IW their_APPGE land_NN1 Therefore_RR the_AT increase_NN1 in_II land_NN1 prices_NN2 has_VHZ been_VBN derived_VVN from_II the_AT original_JJ rise_NN1 in_II house_NN1 prices_NN2 ._. 
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Demand_VV0 for_IF houses_NN2 is_VBZ influenced_VVN by_II many_DA2 factors_NN2 such_II21 as_II22 price_NN1 ,_, income_NN1 ,_, substitutes_NN2 ,_, complimentary_JJ goods_NN2 ,_, tastes_NN2 ,_, expectations_NN2 macroeconomic_JJ policy_NN1 and_CC planning_VVG policy_NN1 ._. 
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Some_DD of_IO these_DD2 factors_NN2 will_VM now_RT be_VBI discussed_VVN in_II more_DAR detail_NN1 :_: Income-if_CS consumer_NN1 incomes_NN2 increase_VV0 in_II real_JJ terms_NN2 ,_, more_DAR people_NN will_VM be_VBI able_JK to_TO purchase_VVI their_APPGE own_DA homes_NN2 or_CC move_VV0 up_RP the_AT housing_NN1 ladder_NN1 ._. 
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<s>
Complimentary_JJ goods-if_CS a_AT1 complimentary_JJ good_JJ ,_, such_II21 as_II22 council_NN1 tax_NN1 is_VBZ higher_JJR in_II one_MC1 area_NN1 compared_VVN to_II another_DD1 similar_JJ location_NN1 ,_, people_NN may_VM be_VBI dissuaded_VVN from_II moving_VVG to_II the_AT area_NN1 with_IW higher_JJR tax_NN1 ._. 
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<s>
Macroeconomic_NP1 policies_NN2 -_- These_DD2 can_VM influence_VVI the_AT level_NN1 of_IO demand_NN1 in_II property_NN1 markets_NN2 ._. 
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<s>
Adjustments_NN2 to_II interest_NN1 rates_NN2 can_VM reduce_VVI or_CC increase_VVI consumer_NN1 demand_NN1 as_CSA loans_NN2 and_CC mortgages_NN2 become_VV0 more_RGR or_CC less_RGR expensive_JJ ._. 
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<s>
Taxation_NN1 may_VM effect_VVI how_RGQ expensive_JJ and_CC /or_FU profitable_JJ it_PPH1 is_VBZ to_TO invest_VVI in_II property_NN1 e.g._REX due_II21 to_II22 taxation_NN1 of_IO development_NN1 gains_NN2 ._. 
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<s>
Planning_NN1 -_- Reinforcement_NN1 of_IO green_JJ belt_NN1 policy_NN1 could_VM increase_VVI the_AT demand_NN1 for_IF residential_JJ properties_NN2 on_II the_AT periphery_NN1 of_IO such_DA areas_NN2 ,_, as_CSA these_DD2 houses_NN2 would_VM be_VBI guaranteed_VVN a_AT1 protected_JJ view_NN1 ._. 
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<s>
Decisions_NN2 affecting_VVG transport_NN1 will_VM also_RR affect_VVI the_AT demand_NN1 for_IF property_NN1 e.g._REX the_AT decision_NN1 to_TO build_VVI a_AT1 new_JJ motorway_NN1 ._. 
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<s>
This_DD1 may_VM decrease_VVI the_AT demand_NN1 for_IF property_NN1 along_II the_AT roads_NN2 route_NN1 (_( planning_VVG blight_NN1 )_) but_CCB may_VM improve_VVI accessibility_NN1 to_II towns_NN2 that_CST it_PPH1 links_VVZ and_CC increase_VV0 demand_VV0 there_RL ._. 
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<s>
Expectations/_FU hope_NN1 value_NN1 -_- Expectations_NN2 of_IO what_DDQ may_VM happen_VVI in_II the_AT future_NN1 are_VBR a_AT1 powerful_JJ force_NN1 behind_II demand_NN1 ._. 
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<s>
If_CS consumers_NN2 believe_VV0 their_APPGE incomes_NN2 will_VM rise_VVI in_II the_AT near_JJ future_NN1 they_PPHS2 may_VM increase_VVI their_APPGE demand_NN1 now_RT rather_CS21 than_CS22 later_RRR ._. 
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<s>
Expectations_NN2 of_IO future_JJ increases_NN2 in_II house_NN1 prices_NN2 may_VM encourage_VVI people_NN to_TO buy_VVI a_AT1 house_NN1 now_RT rather_CS21 than_CS22 later_RRR when_CS prices_NN2 will_VM be_VBI higher_JJR ._. 
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<s>
Expectations_NN2 could_VM in_II themselves_PPX2 be_VBI self-fulfilling_JJ prophecies_NN2 ,_, for_REX21 example_REX22 if_CS it_PPH1 is_VBZ believed_VVN that_DD1 house_NN1 prices_NN2 will_VM rise_VVI at_II some_DD future_JJ date_NN1 this_DD1 encourages_VVZ present_JJ consumption_NN1 ._. 
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<s>
Thus_RR a_AT1 rise_NN1 in_II the_AT demand_NN1 for_IF housing_NN1 will_VM cause_VVI house_NN1 prices_NN2 to_TO rise_VVI ._. 
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<s>
Research_NN1 by_II Barker_NP1 (_( 2004_MC )_) emphasises_VVZ the_AT effect_NN1 of_IO expectations_NN2 :_: 'New_VV0 supply_VV0 only_RR accounts_VVZ for_IF 1%_NNU of_IO housing_VVG stock_NN1 ,_, and_CC so_RG even_RR measures_VVZ that_CST change_VV0 new_JJ supply_NN1 significantly_RR would_VM not_XX have_VHI much_DA1 effect_NN1 on_II prices_NN2 if_CS it_PPH1 were_VBDR not_XX for_IF the_AT role_NN1 of_IO expectations_NN2 ._. 
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<s>
If_CS policy_NN1 changes_NN2 alter_VV0 perceptions_NN2 about_II the_AT future_JJ course_NN1 of_IO prices_NN2 then_RT the_AT impact_NN1 on_II today_RT 's_GE prices_NN2 is_VBZ potentially_RR much_RR larger_JJR ._. '_" 
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<s>
._. Calculating_VVG the_AT price_NN1 of_IO landTo_NN1 calculate_VV0 the_AT price_NN1 that_CST can_VM be_VBI bid_VVN for_IF land_NN1 ,_, the_AT builder/developer_NN1 must_VM first_MD calculate_VVI how_RGQ much_DA1 the_AT completed_JJ property_NN1 can_VM be_VBI sold_VVN for_IF ,_, and/or_CC how_RGQ much_DA1 the_AT rental_NN1 earnings_NN2 will_VM be_VBI from_II it_PPH1 ._. 
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<s>
'_GE A_AT1 buyer_NN1 will_VM use_VVI information_NN1 on_II future_JJ rentals/earning_FU to_TO calculate_VVI the_AT present_JJ value_NN1 they_PPHS2 think_VV0 the_AT asset_NN1 is_VBZ worth_NN1 ._. 
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<s>
Buyers_NN2 anticipating_VVG a_AT1 higher_JJR stream_NN1 of_IO rental_NN1 earnings_NN2 pay_VV0 a_AT1 higher_JJR purchase_NN1 price_NN1 for_IF capital_NN1 assets_NN2 ._. '_" 
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<s>
(_( Begg_NP1 et_RA21 al_RA22 ,_, 2003_MC )_) In_II long-run_JJ equilibrium_NN1 the_AT asset_NN1 price_NN1 'is_APPGE both_RR the_AT price_NN1 at_II which_DDQ suppliers_NN2 of_IO capital_NN1 goods_NN2 are_VBR willing_JJ to_TO produce_VVI and_CC the_AT price_NN1 at_II which_DDQ buyers_NN2 are_VBR willing_JJ to_TO purchase_VVI ._. '_" 
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<s>
(_( Begg_NP1 et_RA21 al_RA22 ,_, 2003_MC )_) When_RRQ the_AT market_NN1 value_NN1 of_IO the_AT property_NN1 has_VHZ been_VBN estimated_VVN ,_, costs/_FU factors_NN2 of_IO production_NN1 in_II the_AT assembly_NN1 of_IO property_NN1 will_VM need_VVI to_TO be_VBI calculated_VVN e.g._REX construction_NN1 materials_NN2 ,_, labour_NN1 ,_, cost_NN1 of_IO borrowing_NN1 money_NN1 ._. 
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<s>
The_AT price_NN1 of_IO land_NN1 has_VHZ to_TO be_VBI bid_VVN above_II its_APPGE next_MD best_RRT use_VV0 -_- this_DD1 is_VBZ the_AT opportunity_NN1 cost_NN1 ._. 
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<s>
Unless_CS the_AT builders_NN2 '_GE supernormal_JJ profit_NN1 is_VBZ sufficient_JJ to_TO attract_VVI land_NN1 from_II its_APPGE next_MD best_RRT use_VV0 e.g._REX agriculture_NN1 ,_, the_AT builder_NN1 will_VM not_XX be_VBI able_JK to_TO build_VVI ._. 
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<s>
The_AT price_NN1 a_AT1 builder_NN1 will_VM be_VBI willing_JJ to_TO offer_VVI a_AT1 land_NN1 owner_NN1 is_VBZ frequently_RR referred_VVN to_II as_II the_AT residual_JJ ._. 
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This_DD1 is_VBZ the_AT amount_NN1 left_VVN over_RP after_II profits_NN2 and_CC all_DB costs_NN2 have_VH0 been_VBN taken_VVN into_II account_NN1 ._. 
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<s>
If_CS house_NN1 prices_NN2 increase_VV0 ,_, higher_JJR profits_NN2 may_VM be_VBI taken_VVN ,_, and_CC there_EX may_VM well_RR be_VBI increased_JJ building_NN1 costs_VVZ as_RG more_DAR labour_NN1 and_CC building_NN1 materials_NN2 are_VBR demanded_VVN ,_, but_CCB the_AT amount_NN1 of_IO money_NN1 left_VVD over_RP to_TO bid_VVI for_IF land_NN1 is_VBZ also_RR likely_JJ to_TO be_VBI greater_JJR ._. 
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<s>
Jowsey_NP1 et_RA21 al_RA22 state_VV0 that_DD1 "_" Competition_NN1 among_II developers_NN2 ensures_VVZ that_CST any_DD supernormal_JJ development_NN1 profit_NN1 accrues_VVZ to_II sellers_NN2 of_IO the_AT building_NN1 sites_NN2 in_II the_AT form_NN1 of_IO higher_JJR land_NN1 prices_NN2 ._. "_" 
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<s>
(_( 2004_MC )_) The_AT graphs_NN2 below_II show_NN1 what_DDQ happens_VVZ to_II the_AT residual_JJ when_CS the_AT demand_NN1 for_IF housing_VVG rises_NN2 ._. 
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In_II these_DD2 graphs_NN2 ,_, the_AT demand_NN1 for_IF housing_NN1 has_VHZ risen_VVN from_II time_NNT1 period_NN1 one_MC1 to_II time_NNT1 period_NN1 two_MC ._. 
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<s>
This_DD1 price_NN1 increase_NN1 has_VHZ encouraged_VVN new_JJ development_NN1 ,_, and_CC the_AT number_NN1 of_IO new_JJ houses_NN2 being_VBG built_VVN has_VHZ increased_VVN from_II Qh1_FO to_II Qh2_FO ._. 
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The_AT overall_JJ revenue_NN1 received_VVN by_II the_AT builder_NN1 has_VHZ increased_VVN ._. 
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<s>
Therefore_RR ,_, even_CS21 if_CS22 the_AT builder_NN1 's_GE profit_NN1 margin_NN1 has_VHZ increased_VVN and_CC costs_NN2 have_VH0 risen_VVN it_PPH1 is_VBZ likely_JJ that_CST more_DAR will_VM be_VBI available_JJ for_IF bidding_VVG for_IF building_NN1 land_NN1 ._. 
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The_AT excess_NN1 left_VVD over_RP ,_, or_CC the_AT residual_JJ is_VBZ shown_VVN by_II area_NN1 X2P2E2D2_FO in_II time_NNT1 period_NN1 two_MC and_CC this_DD1 is_VBZ larger_JJR than_CSN area_NN1 X1P1E1A1_FO in_II time_NNT1 period_NN1 one_MC1 The_AT residual_JJ valuation_NN1 method_NN1 has_VHZ been_VBN criticised_VVN by_II some_DD such_II21 as_II22 (_( Ball_NP1 et_RA21 al_RA22 ,_, 1998_MC )_) they_PPHS2 state_VV0 that_CST although_CS the_AT residual_JJ valuation_NN1 makes_VVZ sense_NN1 as_II an_AT1 accounting_NN1 method_NN1 "_" it_PPH1 is_VBZ far_RG less_RGR satisfactory_JJ as_II a_AT1 theory_NN1 of_IO land_NN1 price_NN1 determination_NN1 "_" they_PPHS2 state_VV0 that_CST "_" the_AT residual_JJ approach_NN1 is_VBZ to_II an_AT1 extent_NN1 fiction_NN1 because_CS within_II the_AT calculation_NN1 variables_NN2 are_VBR artificially_RR fixed_VVN whose_DDQGE values_NN2 in_II reality_NN1 are_VBR influenced_VVN by_II land_NN1 prices_NN2 ._. "_" 
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<s>
For_REX21 example_REX22 one_PN1 variable_JJ is_VBZ the_AT size_NN1 and_CC shape_NN1 of_IO the_AT building_NN1 to_TO be_VBI constructed_VVN ._. 
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This_DD1 is_VBZ influenced_VVN by_II the_AT land_NN1 costs_NN2 ,_, so_CS they_PPHS2 say_VV0 that_DD1 construction_NN1 costs_NN2 are_VBR not_XX known_VVN prior_II21 to_II22 land_NN1 costs_VVZ rather_RR they_PPHS2 are_VBR simultaneously_RR determined_VVN ._. 
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<s>
Conclusion_NN1 Supply_NN1 and_CC demand_VV0 interact_VV0 in_II the_AT marketplace_NN1 ,_, and_CC will_VM allocate_VVI land_NN1 resources_NN2 according_II21 to_II22 'the_NN1 most_RGT profitable_JJ use_NN1 relative_II21 to_II22 other_JJ land_NN1 resources_NN2 ._. '_" 
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(_( Harvey_NP1 and_CC Jowsey_NP1 ,_, 2004_MC )_) The_AT equilibrium_NN1 price_NN1 will_VM be_VBI the_AT price_NN1 at_II which_DDQ suppliers_NN2 are_VBR willing_JJ to_TO produce_VVI and_CC buyers_NN2 are_VBR willing_JJ to_TO pay_VVI ._. 
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Different_JJ factors_NN2 affect_VV0 the_AT supply_NN1 and_CC demand_VV0 for_IF land_NN1 and_CC housing_NN1 ._. 
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If_CS supply_NN1 is_VBZ constrained_VVN e.g._REX by_II planning_VVG policies_NN2 ,_, or_CC demand_VV0 increases_NN2 and_CC supply_NN1 can_VM not_XX keep_VVI up_RP ,_, prices_NN2 of_IO houses_NN2 will_VM rise_VVI ._. 
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Land_NN1 prices_NN2 do_VD0 not_XX determine_VVI house_NN1 prices_NN2 ._. 
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<s>
It_PPH1 is_VBZ land_NN1 use_NN1 which_DDQ determines_VVZ property_NN1 value_NN1 ,_, and_CC thus_RR land_VV0 value_NN1 ,_, as_CSA this_DD1 is_VBZ derived_VVN from_II it_PPH1 ._. 
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The_AT price_NN1 which_DDQ can_VM be_VBI bid_VVN for_IF land_NN1 is_VBZ determined_VVN by_II calculating_VVG the_AT residual_JJ ._. 
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So_RR ,_, the_AT higher_JJR the_AT value_NN1 of_IO the_AT land_NN1 use_NN1 ,_, the_AT greater_JJR the_AT residual_JJ and_CC the_AT higher_JJR the_AT land_NN1 price_NN1 ._. 
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