Bid rent theory - Wikipedia
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Bid rent theory
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Bid rent curve
The bid rent theory is a geographical economic theory that refers to how the price
and demand for real estate change as the distance from the central business district
(CBD) increases. It states that different land users will compete with one another for
land close to the city centre. This is based upon the idea that retail establishments
wish to maximize their profitability, so they are much more willing to pay more for
land close to the CBD and less for land further away from this area. This theory is
based upon the reasoning that the more accessible an area (i.e., the greater the
concentration of customers), the more profitable.
Contents
1 Explanation
2 Agricultural analogy
3 Bid rent theory in the central business district
4 References
5 Sources
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Bid rent theory - Wikipedia
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https://en.wikipedia.org/wiki/Bid_rent_theory
Explanation[edit]
Land users all compete for the most accessible land within the CBD. The amount they
are willing to pay is called "bid rent". The result is a pattern of concentric rings of land
use, creating the concentric zone model.
It could be assumed that, according to this theory, the poorest houses and buildings
would be on the very outskirts of the city, as this is the only location that they can
afford to occupy. In modern times, however, this is rarely the case, as many people
prefer to trade off the accessibility of being close to the CBD and move to the edges of
a settlement, where it is possible to buy more land for the same amount of money (as
the bid rent theory states). Likewise, lower-income housing trades off greater living
space for increased accessibility to employment. For this reason, low-income housing
in many North American cities, for example, is often found in the inner city, and highincome housing is at the edges of the settlement.
Agricultural analogy[edit]
Although later used in the context of urban analysis, though not yet using this term,
the bid rent theory was first developed in an agricultural context. One of the first
theoreticians of bid rent effects was David Ricardo, according to whom the rent on the
most productive land is based on its advantage over the least productive, the
competition among farmers ensuring that the full advantages go to the landlords in
the form of rent. This theory was later developed by J. H. von Thünen, who combined
it with the notion of transport costs. His model implies that the rent at any location is
equal to the value of its product minus production costs and transport costs. Admitting
that transportation costs are constant for all activities, this will lead to a situation
where activities with the highest production costs are located near the marketplace,
while those with low production costs are farther away.
The concentric land-use structure thus generated closely resembles the urban model
described above: CBD – high residential – low residential. This model, introduced by
William Alonso, was inspired by von Thünen's model.[1]
Bid rent theory in the central business district[edit]
Land users, whether they be retail, office, or residential, all compete for the most
accessible land within the central business district (CBD). The amount they are
willing to pay is called bid rent. This can generally be shown in a "bid rent curve",
based on the reasoning that the most accessible land, generally in the centre, is the
most expensive land.
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Bid rent theory - Wikipedia
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Commerce (in particular large department stores and chain stores) is willing to pay
the greatest rent in order to be located in the inner core. The inner core is very
valuable for these users because it is traditionally the most accessible location for a
large population. This large population is essential for department stores, which
require a considerable turnover. As a result, they are willing and able to pay a very
high land rent value. They maximize the potential of their site by building many
stories. As one travels farther from the inner core, the amount that commerce is
willing to pay declines rapidly.
Industry, however, is willing to pay to be in the outer core. There is more land
available for factories, but it still has many of the benefits of the inner core, such as a
marketplace and good transportation linkages.
As one goes farther out, the land becomes less attractive to industry because of the
reducing transportation linkages and a decreasing marketplace. Because householders
do not rely heavily on these factors and can afford the reduced costs (compared with
those in the inner and outer core), they can purchase land here. The farther from the
inner core, the cheaper the land. This is why inner-city areas are very densely
populated (with, e.g., terraces, flats, and high rises), while suburbs and rural areas are
more sparsely populated (with semi-detached and detached houses).
References[edit]
1. ^ Shieh, Yeung-Nan (2003-04-01). "An Early Use of Bid Rent Functions". Urban
Studies. 40 (4): 791–795. doi:10.1080/0042098032000065308. ISSN 0042-0980.
S2CID 154746006.
Sources[edit]
Location and land use, 1964, by William Alonso.
"Essential AS Geography", 2000 By Simon Ross, John Morgan and Richard Heelas.
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