Urban Economics and Real Estate

Course code:
Period 2
Language of tuition:
School of Business and Economics
dr. P. Mulder
dr. P. Mulder
dr. P. Mulder
dr. H.R.A. Koster
Teaching method(s):
Lecture, Study Group, Computer lab

Course objective

This course in Urban and Real Estate Economics addresses the
relationship between urban space, real estate development and economic
development. It links economic theory to urban and real estate
development, and it places real estate development in the wider context
of the relation between city growth and economic development. Insights
are developed both through studying theoretical backgrounds (the first
eight lectures) and by considering practical examples of the issues at
hand (the last four lectures). After a general introduction on the very
nature and existence of cities, the following topics are covered: (1)
location theory, (2) agglomeration economies, (3) city size and
population distribution, (4) land use and land rents, (5) real estate
and government policy, (7) growth and decline of cities, (8) sorting of
people across neighborhoods within cities, (7) parking and real estate
prices, (8) green buildings, (9) economics of skyscrapers, (10)
economics of urban planning.

With respect to each topic you should be able:
(i) to define and describe the topic;
(ii) to understand the economic theory that explains the topic;
(iii) to understand the empirical (econometric) analysis of the topic;
(iv) to understand the (im)possibilities of urban and real estate
(v) use econometric methods to test theoretical predictions of urban
economic models.

Course content

Particularly over the past decades, technological change caused the cost
of connecting across space has declined sharply, which should have made
it less attractive for people to cluster together in cities. Yet by many
measures, cities are thriving all over the world. Most economic
activities such as production, consumption and innovation take place in
urban areas, despite the relatively high location costs.

Why is this the case? Why are some cities thriving, while others face
serious decline? Why are real estate prices more or less stagnant in
some cities or neighborhoods, while they rise sharply in others? Of
course, this is a matter of supply demand. Therefore, a central topic in
this course is the location behavior of firms and households. Why do
they prefer one location of the other? More specifically, why are so
many firms interested in expensive locations at, for example, the
Amsterdam South Axis? Why do for example computer and fashion shops
often cluster in space, while bakers are typically dispersed over a
city? Will the advent of e-commerce cause firms to leave crowded and
expensive cities? For households, comparable questions arise. Why do
many higher educated people nowadays prefer to live in Amsterdam rather
than in Almere, and why was the opposite true in the 1980s? Is the
location choice of people merely driven by the composition of the
population or real estate characteristics in a certain area? Why do
certain social and ethnic groups often cluster in space, and to what
extent is this desirable? How do location choices of firms and
households interact?

When thinking about location behavior of firms and households, we touch
upon various topics that have a substantial impact on real estate
markets. For example, the economic backgrounds and consequences of
suburbanization, the rise of urban 'subcentres', and the rise of so-
called 'network cities', as witnessed worldwide (and in The Netherlands
alike). We will also look at interdependencies between cities, in terms
of their economic dynamics and functional development. Why and how do
cities specialize, why does nearly every country has a few big cities
and many smaller towns and villages, and are such arrangements
economically desirable?

At the aggregate level, location choices by firms and households
translate into (changes in) land use and real estate development in
modern cities. In this course you learn, both from a theoretically and
empirically perspective, to analyze land prices as a function of, inter
alia, population and real estate characteristics, location and transport
costs. In addition, we identify the (im)possibilities of influencing the
observed trends through urban and real estate policies. What is the
impact of imposing or relaxing urban planning regulation on real estate
development? Can and should we mix different kind of people in the same
neighborhood? Is mortgage deductibility a good idea? What should we do
with real estate in declining (country side) regions? Finally, we
address some typically urban phenomena in relation to real estate
markets: urban environment and green buildings, parking, and building
height (skyscrapers).

Form of tuition

Twelve plenary lectures of two hours each, plus six tutorials of two
hours each. Students are expected to have read the material in advance;
the plenary lectures cover key elements only. Tutorials introduce the
assignments, econometrics and working with Stata software.

Type of assessment

Written exam (60%) and two assignments (40%). The overall grade should
be at least a 5.5 to pass.

Course reading

- Arthur O’ Sullivan, Urban Economics, McGraw-Hill International – 8th
Edition / 7th edition.
- Selected scientific papers (see Canvas for details).

Entry requirements

Introductionary level of microeconomics.

Recommended background knowledge

Basic knowledge of econometrics (regression analysis) is recommended.

Target audience

Second or third-year bachelor students who want to get a solid
introduction into the economics of cities and real estate, economic
geography or spatial economics.

© Copyright VU University Amsterdam
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