Land Rent Theory

Abstract

Property markets play an important role in structuring geographic phenomena and processes such as the spatial distribution of economic activities or residential segregation. Land rent theory proves to be a powerful tool for the understanding of land markets, their constitution, and regulation. In a narrow definition, land rent refers to the payment of a tribute to the land owner. The total sum of capitalized future rent payments represents the land price. Land rent theory seeks to explain spatial phenomena by reflecting upon their economic base. There are two broad theoretical ways of dealing with land rent theory, and these differ substantially. On the one hand, there are models based on von Thunen’s and Alonso’s work which are used in new urban economics and characterized by deductive approaches and formal models. On the other hand, there is the political economy approach to land rent theory which provides a much broader and also more diverse institutional perspective on geographical phenomena. Furthermore, the concept of rent gap, central to discussions in urban geography is discussed. This article on land rent theory provides an overview of crucial insights in the different approaches to the topic and their historical development.