SEMESTER – 7

URBAN LAND VALUES BUILDING ECONOMIC AND

SOCIOLOGY
MODULE -04
MODULE 4

• Urban land values: Various factors affecting the value of urban land.
• Building Economics: Building Efficiency and cost reduction through planning and design of building
components. Total cost of building, Initial cost, Operational cost, maintenance cost.
• Life cycle cost.
What is land value
• The price, of a particular site of land is what a fair exchange brings in terms of money during an agreed
trade or transaction between two parties, one of whom is the land owner is called land value.
• The ingredients that constitute land value are utility, scarcity and desirability.

• Urban land has special characteristics compared to other

economic goods: the supply of land is fixed (with the exception
of land reclamation), every parcel of land has a fixed location,
which is a unique property, and the use of a parcel of land
affects the use and value of surrounding parcels.
• The last property, which is also called an externality of land use,
always gives rise to government intervention. All these
characteristics as a whole make “the use and ownership of land
involve an enormously complex package of interests, rights and
occupancy.
• Thus, in the urban area, though the land cannot directly yield
any products, the unusual characteristics of unique in the location
still provides it the status of a special commodity. These decide
the urban land market special characteristics; no matter it is in
private treaty, formal tender or public auction.
• Land value can be defined as the monetary cost of the land. It can be the cost of undeveloped land with or
without a built property. Generally speaking, land value in real estate is primarily associated with a vacant
plot or piece of land. When discussing about real estate in general, the term “property value” is more
appropriate for any built structure.

• Depending on the country and state you live in, the prices will vary based on different factors such as land use,
land market, interest rates, circle rate and overall real estate value of that particular area. The land value is
determined by the economic principle of highest and best use of land which produces the highest net return in
any term, over a period.

• The property value is dependent on the structural

attributes, land rates, land use and the location of
the land. It is determined by the specific character
of the land such as land use, location, accessibility,
aesthetics.
• Factors affecting Land Value are of importance to
calculate or estimate land prices, understanding of
these factors will provide a more accurate and
realistic cost of land. These factors affecting Land
Value do not necessarily give the exact amount but
are helpful in comparison.
FACTORS AFFECTING LAND VALUE
While there are number of reasons and factors which influence the price of land, these factors can be grouped into
few categories:

• Accessibility & Land Use.

• Physical attributes.
• Location.
• Price in surrounding and nearby area.
• Market Value and property price.

The various factors which directly or indirectly affect the land value are described below:

• Physical attributes: These include quality of location, topography, climate, availability of water, sewer lines, etc.
More and better facilities are attributed to a higher price of land. Topography further has a direct effect on the
construction cost and thus the overall development cost.
• The facilities thus developed on an uneven land will have a much higher cost as compared to the flat plain. This is
the reason why construction cost is much higher in hilly and mountainous areas and the price of land is low.
• Accessibility to economic activities: The more easily economic activity is accessible, the more is the value of the
land. For example, most of the metropolitan cities have the maximum land values at the center, or at the central
business district of the city. This is because of the nearness to the economic activities and workplace. This factor
affecting land value is the sole most important factor which led to the development of various land price models
in urban economics. CBD area is the most accessible market area and thus usually houses the most expensive
businesses and services. Example include the cities such as London, Ney York, Beijing, Mumbai etc. which have
world’s highest real estate prices.
• Neighborhood amenities: The cost of land is also affected by the availability of the facilities such as shopping
areas, medical facilities, school, parks & playgrounds, and other basic needs of the humans. This helps in saving
the time of people every day, the time saved adds up the cost of land. Also, the reduced travel and reduced trip
distance will directly have the monetary benefits of the person residing in an area with many such facilities in
proximity. Depending on the need of a buyer, he or she may decide to live in an residential area or near a
commercial area. Such location has direct impact on the daily commuting and transportation cost.
• Present and future land use: The value of the land is also determined by the land use permitted in the land
premises. For example, if we compare the values of two lands of same prices and same location but the land use
permitted in the lands are different, one is commercial and one is residential. In such a case the value of the land
with the land use which has more rate of return over a period of time will be valued more. People are willing to
pay a higher amount for commercial land and mixed use development, in some cases industrial or institutional
land use might attract even higher prices. Agricultural land has lowest price since there are a number of
restrictions on the permitted activities. Future value also depends on upcoming greenfield development or
brownfield development.
• Demand and Supply Function: With the significant demographic changes in the cities with time, the need for land
also increases with the same factor, with the increase in population there is an increase in economic and other
activities. This directly increases the demand of the land components.
• The anticipation of high yields may also induce false scarcity of land; hence the location advantages of the
properties at any time within the urban boundaries and hence causes economic values of land to be increased. For
any site, there are specific points of transition in use, closely related to the infrastructure and services, where a
jump in property value is likely to happen.

• Location and Transport Linkages: The property located in the area of high level of infrastructure facilities or the
one located in or adjacent to the area of intensive economic activities such as markets or industries have higher
values. Transport linkages are also crucial since they govern the mobility & ease of movement to and from the
area. Clearly defined hierarchy of roads, efficient public transportation and lack of congestion are some of the
desired transportation attributes of any area.
• Residential land values are also observed to be in direct proportion to the hierarchical order of the adjacent road.
Easy access and proximity to public transport such as bus or metro train is an added advantage for the resident
and thus adds up to the cost of land.
• Land and Property Records: While buying a land, buyers need to be aware about the actual ownership of a
land. Thus having verifiable records of the past purchase and buyers of a land become important. This is of
particular importance if any dispute arises in future and the current land owner is required to prove the
ownership of land. Land without any verifiable records is usually available at cheap price but should be avoided.

• Development Controls and building bye laws: Since we are discussing about he price of land, it become
important to take into account the various restrictions and regulations in place related to construction. A land
once purchased will be put to use in some or other manner and thus needs to be developed. The construction
which will take place is governed by the various laws such as land use, land tax, premise level use, floor area
ration, and other development controls. Thus such rules and regulations are major factors in the price of land.

The valuation of land is done keeping in mind the factors mentioned

above; however, the actual selling price of an area is ultimately
determined by the paying capacity of the buyer. All the factors
mentioned above-affecting land value might give a price which no
one is willing to pay, and thus the actual amount paid becomes the
price instead of the evaluated price.
How land use affect property prices? – Buildings, real estate and
properties, located in commercial and market areas, hold higher
value than their counterparts in the residential areas
INTRODUCTION TO BUILDING ECONOMICS
Building economics is concerned with production and consumption and services and the analysis of commercial
activities.

As it is related to architecture and building activity – all types of buildings for all types of functions by the builders
(production) and consumption i.e., the ones who either buy or hire those buildings for various functions with the
services offered by professionals like architects, planners, engineers etc.
• Building Economics is a form of microeconomic analysis that
looks at how individual actors in the economy make
economic plans and decisions. It looks at the economic
consequences and impacts of architectural design
decisions. Urban economics, energy economics, engineering
economics, real estate economics, and environmental
economics are all included.
• Construction Estimation, Construction Management, Project
Management, Construction Finance, Real Estate Financing,
and other services are included. Decisions about
architectural design can be costly.
• Demand and supply of goods and services through a medium which produces goods/services .
• Economics is also the study of production and consumption of goods and transfer of wealth to produce and
obtain those goods.
• Building Economics is a branch of general economics .
• It is based on application of principles of economics related to construction industry.

Building Economics is concerned with:

-- construction industry
-- its place in economy
-- role of construction firms
-- role of designers and constructors (builders),
-- processes employed in construction and
-- final building product
-- Present scope of Building Economics lays emphasis on
--How to make it more economical, effective and
efficient.
--But does not involve resources and accounting
practices.
IMPORTANCE OF BUILDING ECONOMICS
• Need to introduces /integrate Economy in Building Project in early design stage.
• Economy made integral part of project planning, construction and management.
• Helps in managing cost over-run.
• Helps in managing time over-run through time management.
• Ensuring Building design completed within schedule time.
• Provides complete picture of total cost of project.
• Helps designer integrating aesthetics and economy Helps in meeting clients needs within
given resources. Helps in meeting clients needs within given Time.
• Helps in creating product without sacrificing quality Looks at life cycle cost rather than initial
cost.
• Provides most economical solution to building construction / operational costs.
• Reduces maintenance cost to minimum.
• Provides value for money to client.
• Provides highest building efficiency in design.
• Helps in making planning choices/ bringing economy in buildings.
• Helps Architect to bring innovation in design and construction of building.
 BUILDING EFFICIENCY AND COST REDUCTION THROUGH PLANNING AND DESIGNING

In construction project reduction in cost can be achieved by

some of the following techniques:
a) Value Engineering.
b) Material Management.
c) Budgetary Control.
d) Cost optimization Techniques.
e) Cost Reduction Techniques at site.
VALUE ENGINEERING:
Value engineering is a systematic application of recognized techniques which identify the functions of the product
or service, establish the worth of those functions, and provide the necessary functions to meet the required
performance at the lowest overall cost.
Application of Value Engineering(VE) to construction projects is a solution which emphasis the function of project
which helps to team to make final choice and which results in cost effective design for project. Material
Management:
• To manage productivity and cost efficiency material management is essential.
• It contributes the major portion of expenses in construction projects.
MATERIAL MANAGEMENT
• Is the process of sourcing appropriate materials at a reasonable cost and ensuring their availability at the right
place and time to meet project requirements and deadlines. It is a vital function for construction projects of every
scope.
• The quality of your construction material management can make or break a project budget. A poor materials
management strategy risks skyrocketing costs through decreased labor productivity, material waste, and missed
project milestones and deadlines.

• Materials planning and purchasing

• Scheduling and transportation
• Receiving and quality control
• Storage and inventory
management
• On-site transport
• Waste management
 BUDGETARY CONTROL
• For cost control on a project, the construction plan and the associated cash flow estimates can provide the
baseline reference for subsequent project monitoring and control.
• For schedules, progress on individual activities and the achievement of milestone completions can be compared
with the project schedule to monitor the progress of activities.
COST OPTIMIZATION TECHNIQUES
The cost optimization is a process that should be carried out throughout the construction period to ensure that the cost
of the building is kept within the estimated cost limits.

• Comparison with a cost standard.

• Subdivision by detail.
• Integration with other functions.
COST REDUCTION TECHNIQUES AT THE SITE
• Contractor uses schedule to monitor the progress of the work which is related to cost. Inspection of work is done
and comparison with budget is made.
• Meetings held to review the progress of work provides motivation to all workers and stake holders to improve
their performance.
• Documentation of all activities or record keeping is important to enable detection of deviation from the set
standards.
• Quantification of work, and comparing cost with bill quantities helps to evaluate the work and to check the
progress of work.
• It was discussed that using cost reduction techniques by multidisciplinary team, value and economy are improved
through study of alternative design concepts, material and construction methods without compromising functional
requirement and quality.
TOTAL COST OF BUILDING
Means the entire cost of performing the Tenant’s
Work, including design of and space planning for
the Tenant’s Work and preparation of the Working
Drawings and the final “as-built” plan of the
Tenant’s Work, costs of construction labor and
materials, electrical usage during construction,
additional janitorial services, related taxes and
insurance costs, licenses, permits, certifications,
surveys and other approvals required by Law,
phone and data cabling and equipment, security
network, and construction management fees.

Fixed Costs (FC) The costs which don’t vary with changing output. Fixed costs might include the cost of building a
factory, insurance and legal bills. Even if your output changes or you don’t produce anything, your fixed costs stay
the same.
Variable Costs (VC) Costs which depend on the output produced. For example, if you produce more cars, you have
to use more raw materials such as metal. This is a variable cost.
INITIAL COST
INITIAL COST OF THE BUILDING means the total cost spent on:
LAND, PLANNING, DESIGNING AND CONSTRUCTION TILL THE TIME OF OCCUPANCY.
The components of Initial cost include:
1. Land Cost: Cost incurred in acquiring land and Registration. It Includes( when land directly purchased from
landowners)
• Cost of land
• cost prior to registration
• Cost of Documentation -- Bank Charges transaction ,charges for making payment of land
• Registration Charges of land
• Other statutory Charges and fees
• Miscellaneous Charges When allotted through any Government Agency
• Allotment cost
• Interest Cost
• Documentation Cost
• Land Registration Charges
• Fees Charged by Authority.
2.Cost of Designing Building - includes:
• Cost of Surveying
• Cost of testing soil/ bearing capacity/water table
• Fee of the Architect
• Building Plan Approval fee/ charges –
• Cost of Structure Design
• Cost of designing Electric Services etc.

3. Cost of Developing Site:

• Clearing the site, -Cutting and filling
• Providing temporary roads, water supply( water storage) lighting, fencing,
• Getting temporary water connection
• Getting Temporary electric connection.
• Providing site utilities
• Site office for project manager/staff and
• other facilities office- stores, -Cost of Providing space for Parking - Cost of providing shelter to the
workers etc.
OPERATIONAL COST
Operating costs or operational costs, are the expenses which are related to the operation of a business, or to the
operation of a device, component, piece of equipment or facility. They are the cost of resources used by an
organization just to maintain its existence.
Simply put, building operating costs are the
expenses related to the operation and
management of the building. The landlord passes
on these costs to the tenant based on their
proportionate share of occupied space.

• Wages.
• Utilities
• Maintenance and repairs
• Rent
• Sales
• General and administrative expenses
MAINTENANCE COST
The maintenance costs are defined as the cost of keeping. the building in good repair and working condition. They
include painting, decorating. and repairs. The cost which is incurred on a monthly basis for the upkeep of the
property. This includes maintenance of the building/s and the amenities.
LIFE CYCLE COST
Life cycle cost (LCC) is an approach that assesses the total cost of an asset over its life cycle including initial capital
costs, maintenance costs, operating costs and the asset's residual value at the end of its life. Life cycle cost (LCC) is
the sum of the costs throughout the whole life cycle of a product. Theoretically, an LCC covers the entire life cycle
of a product or an engineering project. The life cycle cost assessment is an economic evaluation of a product or an
engineering project across its lifetime, which helps decision makers to choose the best investment plan.
LCC= IC + OC - DC
where IC is initial investment cost, OC is operating cost, and DC
is discarding cost.

The whole life process of a system or an equipment (planning

and design, acquisition and installation, operation and
maintenance, renewal and reform, and even scrap and recycle)
will be taken into account, synthetically, which makes minimum
the life cycle cost. After building the model of an LCC, the
profound influence and insignificant influence can be gained by
sensitivity analysis to provide a reference for later decisions
THANK YOU