Abstract
A modified Wicksell model has been used to explain optimal timing decisions concerning the development of land from a lower to a higher urban use. The analysis has shown that, within the context of the assumptions, the optimal date for development or redevelopment of urban land depends on (1) the discount rate applying in the real estate market, (2) the property tax rate, (3) the earnings in any interim use, and (4) the way in which the higest and best use of the land is expected to change in the future. The analysis has also shown that the mere presence of rises in the value of land awaiting development to a higher use should not automatically be interpreted as speculative gains; rather, an increase in the value of such land is inherent in the process of capitalization of future income. More properly, only windfall changes in the value of land, which arise because of imperfectly foreseen evens that affect future development potential, should be considered speculative gains.
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