Cairo University Faculty of Urban & Regional Planning Post Graduate studies 2 Urban Economics

Residential Location Theory

Heba Ezzat Kamel Doaa Mahmoud Abd-El-Aal

Presented by :

Introduction
More than half of land resources in an urban area are generally dedicated for residential activity making it the single largest land consuming land use. Residential land is distributed within the urban structure in form of residential zones each having a variety of attributes differing from one another. Urban population chooses to settle in these residential zones depending upon zonal attributes and preferences they attach to each of these attributes.

History Of The Residential Location Theory

Location allocation theories have been in existence since the last century. However, most efforts have come to light only in1950s. Theories of residential location are traceable to the earlier works of Von Thunen (1826) which investigated the patterns of urban land use based on the assumption of a monocentric city. From the late fifties and early sixties, however, the widely acknowledged trade-off model, alternatively known as the accessibility and space consumption model, has become the standard tool for analyzing urban residential location beginning with the seminal work of Alonso (1964) . Modern researches on housing choice

Alonso (1964)

Considers a city in which employment opportunities are located in a single center (a monocentric city) The residential choice of households is based on maximizing a utility function that depends upon the expenditure in goods, size of the land lots, and distance from the city center
Extended the work of Alonso by relaxing the assumption of a monocentric city of employment opportunities

Harris (1963), Mills (1972) and Wheaton (1974)

Residential Location Theory

The classical economically rational consumer will choose a residential location by weighing the attributes of each available alternative : - Accessibility of workplace, shopping and schools - Quality of neighborhood life and the availability of public services - Costs, including housing price, taxes, and travel costs - Dwelling characteristics, such as age, number of rooms type of appliances - Sustainability and so forth and picking the alternative which maximizes utility . According to the theory of urban residential location choice the choice of residential location balances two conflicting objectives. -First, commutes are costly, especially in the consumption of time. All else equal, utility maximization requires that they be minimized. -Second, utility increases with the consumption of housing services. Therefore, it also increases as the per-unit price of these services declines. Residential locations that have greater access shorter commutes Demand for land will be greater services produced at these will be relatively expensive

Approach to explain the decisions taken by households for residential location

Approaches could be broadly divided into three distinct categories: - Geographic models - Social models - Economic models Geographic models : have stressed mainly on the parameters of accessibility i.e. distance to work place, shopping destinations, social facilities and amenities along with cost implications based on their mode affordability and choice.
Social models have relied mainly on life cycle factors i.e. age and structure of households, neighborhood characteristics, quality of life, environmental pollution, community relations, ethnic and cultural ties and social recognition as the main explanatory variables.

Economic models have extensively relied on economic parameters i.e. housing prices and quality, subsidies and taxes, availability of housing finance, etc.
Some hybrid models have also evolved which tried to explain residential choice by using a combination of social, economic and geographic variable

The Development Of The Models

Types Of Residential Location Theories

Trade Off Theory Based on the assumption of a monocentric city and homogeneity of the housing market . so that it simultaneously explains the aggregate rent (or house price) gradient and individual location decisions . It has facilitated the analysis of the housing issues through the use of an urbantheoretical framework such that the tools of economic theory can now be introduced in an urban setting thereby facilitating the use of quantitative techniques relevant to the study of supply and demand relationships. The Monocentric Bid-rent Model It is the traditional residential location model in urban economics. In its simplest form, as the distance from the CBD increase, transportation costs increase and a household must spend more for commuting; accordingly, the household bids less for land to keep its utility level and land rents decrease . the assumption : City is located on a plane; nonbusiness uses are for agriculture at fixed price ra City has a single, fixed center; all jobs are in the center N identical residents (households) in the city One resident of each household goes the center every day for work along a line to the center All markets are competitive

Social Values And Residential Location Decisions

Phe and Wakely (2000)s socio-economic approach provides insights into residential location theory because their approach explains households residential location decisions better than the monocentric bid-rent model.

Criticism/Problems Of Theory
The assumptions of these theories dont agree with reality and we have mixed success in modifying these underlying theories to incorporate more realistic assumptions. First its obvious that the monocentric assumption doesnt apply to modern metropolitan areas where workplaces and other centers of activity arent concentrated in the central business district or even in the central city.
The residential location theories is that they ignore the existence of long-lived capital stocks. Households participating in the housing market are concerned with characteristics of residential structures beyond simply location and lot size; they value such qualities as structure type, number of bedrooms and bathrooms, unit layout and size, and the units state of repair. Furthermore, residential structures are durable, heterogeneous, and often difficult to modify; so structure characteristics may change slowly. If structure durability has a significant impact on market outcomes or prolongs the time of adjustment to equilibrium, residential-location theories must incorporate stock adjustment on the supply side of the housing market. The residential location theories might be termed locational interdependence; that is households location decision may depend directly or indirectly upon the location choices of other classes of households

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