Analyses of the determinants of land prices in urban areas typically base inferences on housing transactions that combine payments for land and long-lived improvements. These inferences, in turn, are based upon assumptions about the production function for housing and the appropriate aggregation of non-land inputs. In contrast, we investigate directly the determinants of urban land prices. We assemble more than 7,000 land transactions in the San Francisco Bay Area during the 1990-2009 period, and we analyze the link between the physical access of sites, the topographical and demographic characteristics of their local environment, and the prices of vacant land on those sites. We investigate in detail the link between variations in the quality of public services and the value of developable land. Most importantly, our analysis documents the powerful link between variations in the regulatory environment within a metropolitan area and the prices commanded by raw land as an input to residential or commercial development. Finally, we relate these large variations in land prices to the prices paid by consumers for housing in the region.

The price of land is a basic indicator of the attractiveness and economic value of a specific site and of the amenities available at that location. These amenities can include a diverse collection of attributes, ranging from the productivity of a rural site in agriculture to the quality of an urban neighborhood surrounding a given location. In urban areas, variations in the price of land may reflect local externalities and governmental policies as well as the locational and geographical advantages of particular sites. Variations in the price of land within urban areas also affect the cost of housing within metropolitan areas, as well as spatial variations in the density of population and housing (and the capital intensity of non-residential properties as well). Substitution in the production of residential (and non-residential) property means that, in any cross section, intra-metropolitan variations in the price of housing and commercial property will be less pronounced than intra-urban variations in land prices.