Journal of Real Estate Finance and Economics, 22:1, 43±61, 2001
# 2001 Kluwer Academic Publishers. Manufactured in The Netherlands.
Residential Land Values and the Decentralization of
JOHN M. CLAPP
University of Connecticut, Storrs, CT 06269-2041
Texas Christian University, Forth Worth, TX 76129
R. KELLEY PACE
Department of Finance, E.J. Ourso College of Business Administration, Louisiana State University,
Baton Rouge, LA 70803-6308
The land-value surface in suburban Washington, D.C., changed dramatically over the decade of the 1980s. This
article explains these changes in terms of the decentralization of jobs versus socioeconomic trends.
Contemporaneous correlation among selected variables needs to be controlled with reduced forms and SES
techniques. But all explanatory variables except distance from some unchanged point are determined
simultaneously. Predetermined variables control for this double-endogeneity issue.
Land values in 1990 have a U-shape with respect to distance from the U.S. Capitol Building after controlling
for other variables. The data indicate that this is the result of demographic changes rather than the development of
suburban employment nodes: polycentric SUE theory is rejected. Land values are an increasing function of
lagged land values, a decreasing function of work at home. Moreover, work at home is attracted by low structural
density and high socioeconomic status as well as low land values. This supports the argument that demographics
and technological innovations have shaped the land-value surface; baby boomers are seeking low-density housing
for work and family life.
Key Words: suburbanization, subcenters, polycentric urban form, technological change, simultaneous equations
Recent decentralization of U.S. economic activity is well documented (see Bollinger et al.,
1998; Sivitanidou, 1997; Downs, 1994). Rapid development of ``edge cities'' is a
particularly dramatic form of decentralization (Garreau, 1991). McMillen and McDonald
(1998, p. 158) report that the ``®ve employment centers in the newer industrial/retail and
edge-city categories had the largest employment growth rates over the 1980 to 1990
decade.'' In many metropolitan housing markets, decentralization is manifested in
relatively rapid growth of peripheral land values while downtown prices stagnate or