More than any other single variable, the change in land values across time and over space provides important insights into the shifting spatial structure of a city. Whereas a typical property sale reflects the combined value of the land and buildings, the land value alone represents the actual current worth of a location and suggests expectations about the future. Even if a parcel bears the burden of an outmoded construction, the price of the land reflects the present discounted value of the stream of returns that could be earned from the highest and best use of the parcel. Rapidly rising land prices in an area of a city are a clear indication that people expect the neighborhood to be in high demand for some time to come, signaling investment opportunities to developers. Changes in land values may also serve to alert city officials that an area may require zoning changes and investments in infrastructure.

Land value is also an important component in the cost approach to property assessment, which is one of the three commonly used assessment methods (including the sales comparison and income approaches). The cost approach has three major components: (1) the cost of building the existing structure if it were new at the time of assessment; (2) the depreciation of the building to its current condition; and (3) the price of the land parcel. Adding (1) to (3) and subtracting (2) generally produces a good estimate of overall property value. In standard property transactions, however, land values are not easily separated from the value of structures. Sales of vacant land, which more clearly indicate a site’s value, are relatively rare in large, built-up urban areas; as a result, relatively few studies of vacant land sales exist (see Ahlfeldt and Wendland 2011; Atack and Margo 1998; Colwell and Munneke 1997; Cunningham 2006). Teardowns can sometimes be used to measure land values, because land represents the entire value of a property when the existing building is demolished immediately following a sale (McMillen 2006; Dye and McMillen 2007). However, teardowns tend to be concentrated in certain high-value neighborhoods, and the data on demolitions can be hard to obtain.

Among U.S. cities, Chicago is uniquely fortunate to have a data source, Olcott’s Land Values Blue Book of Chicago, which reported estimates of land values for every city block and for blocks in many Cook County suburbs for most of the 20th century. Olcott’s provided a critical input to the cost assessment procedure: After determining the building cost and depreciation, the overall value of a property can be assessed by multiplying the parcel size by the land value provided in the Blue Book series. This article is based on a sampling of data from the Olcott volumes (box 1). It includes a series of maps that provide a clear picture of the spatial evolution of Chicago during the 20th century, similar in spirit to the classic book, One Hundred Years of Land Values in Chicago (Hoyt 1933).

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Box 1: Data Sources for Chicago Land Values

Olcott’s Land Values Blue Book of Chicago covers the City and much of suburban Cook County with a series of 300 maps, each printed on one page of a book. The city itself comprises 160 individual maps with an impressive level of detail. Most block faces have a value representing the price per square foot for a standard 125-foot-deep lot. Land use is also indicated. Large lots and most industrial land have prices quoted by the acre or occasionally by the square foot for an unspecified lot depth. The data represent land values for 1/8- x 1/8-mile square grids, which closely follow Chicago’s street layout and thus resemble city blocks. Each year’s data set includes 43,324 observations for the entire city.

The Lincoln Institute of Land Policy has provided funding to digitize the data contained in Olcott’s Blue Book for a series of years spanning much of the twentieth century: 1913, 1926, 1932, 1939, 1949, 1961, 1965, 1971, 1981, and 1990. A more thorough description of the procedure used is presented in Ahlfeldt et al. (2011). Digitizing the maps involves bringing them into a GIS environment. Average land values are calculated for 1/8- x 1/8-mile squares overlaid on the maps. The full data set has more than 600,000 data points across the 10 individual years.

Olcott’s stopped publication in the early 1990s, and the last year of digitized data is 1990. To supplement Olcott’s records for recent years, the authors obtained data on all vacant land sales in the city from 1980 to 2011. More than 16,000 sales were successfully geocoded, and they display the dramatic increase in land prices during the period prior to the collapse of the housing market at the end of 2006. These combined data sets provide a unique opportunity to analyze the changing spatial structure of an entire city over an extended time.

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Spatial Variation in Land Values

Despite its flat terrain, Chicago has never been a truly monocentric city. Lake Michigan has long been an attractive amenity for its scenic value, its moderating effect on the climate, and the series of parks lining its shore. The Chicago River also has had a significant influence on the location of both businesses and households. Development to the north of the Central Business District (CBD) was delayed because the bridges over the main branch of the river had to open so often for river traffic that commuting to the Loop business area was unpredictable and time consuming. The north and south branches of the river attracted both industrial firms and low-priced residential developments for laborers while repelling high-priced homes designed for CBD workers. The locations of major streets, highways, and train lines also had significant effects on development patterns. Thus, there is ample reason to expect that the rate of change in land values varies across the city.

The maps in figure 1 show this spatial variation in land values in Chicago over time. In 1913, land values were highest in a large area around the CBD, and they were also quite high along the lakefront and along some of the major avenues and boulevards leading out of the downtown area. In 1939, this pattern was generally similar, along with the rise of the north side relative to the south side of the city: Land values were very high all along the northern lakefront and extending well inland on the north side. The area at the edge of the city due west of the CBD (the Austin neighborhood) also had relatively high land values in 1939.

By 1965, the pattern of land values had changed markedly. Very high land values were confined to a relatively small area in the CBD. The high-value area of the west-side Austin neighborhood was much smaller in 1965 than in 1939, and nearly all the formerly high-value areas had shrunk in size.

By 1990, however, the situation changed dramatically. The area with very high values extended much farther north and inland than previously. Areas on the south side had relatively high land values in 1990, particularly around the South Loop (near the CBD) and Hyde Park (along Lake Michigan south of the CBD).

After 1990, the pattern of continued redevelopment of the city is based on an analysis of actual sales of vacant land. The expansion of the high-value area to the north and west of the CBD is remarkable, and the near south side also enjoyed a resurgence during this time.

Figure 2 addresses how the recent recession affected the growth of land values in Chicago by expressing land values as a function of distance from the CBD. The plots show the change in average (log) land values over time for tracts with centroids falling within 2-, 5-, and 10-mile rings around the CBD. In 1913, average land values were far lower 10 miles from the CBD than in the closer rings. By the 1960s, there was little difference between land values across these distances. Since then, average values grew much more in the 2-mile ring than in more distant locations. During the Great Recession, land values declined rapidly in the 2-mile ring, less rapidly in the 5-mile ring, and not at all in the 10-mile ring. Thus, the areas that had the highest rates of appreciation during the period of extended growth also had the highest rates of decline during the recession.

Figure 3 provides a different perspective on the spatial variation in land values over time. The three panels show smoothed land value surfaces for 1913, 1990, and 2005. The 1913 and 1990 surfaces are estimated using Olcott’s data, while the 2005 estimates are based on sales of vacant land. In all three years, land values are far higher in the CBD than elsewhere. In 1913, there are a large number of local peaks in land values at the intersections of major streets. These areas were relatively small commercial districts that served local residents in a time before car ownership was commonplace. In 1990, the land value peak in the CBD is accompanied by a much lower plateau just to the north along the lakefront. In 2005, the plateau has grown to a large area that extends well into the north side and inland along the lakefront. The region of high land values has also extended south along the lakefront, with a local rise much farther south in Hyde Park.

Persistence of Spatial Patterns

Historical land values are interesting not only because they reveal how an urban area has changed over time, but also because the past continues to exert substantial influence on the present. Cities are not rebuilt from scratch in every period. Buildings last a long time before they are demolished, and sites that were attractive in the past tend to remain desirable for a long time. One of the unique features of the Olcott’s data set is that it allows us to compare land values from 100 years ago to current land values and land uses.

Figure 4 shows the average date of construction for the 1/8- x 1/8-mile squares. The recent recentralization of Chicago is evident in the donut shape of building ages around the CBD. The newest buildings are close to the CBD, while the oldest buildings are in the next ring. Buildings in the most distant region were most likely built between 1940 and 1970.

Figure 5 summarizes this relationship by comparing the mean construction date to distance from the CBD. The oldest buildings are in a ring just over 5 miles from the CBD.

A good measure of structural density is the ratio of building area to lot size. Economic theory predicts that structural densities will be high where land values are high. Structures last for a long time. How well do past values predict current structural density? Figure 6 compares the structural density of buildings in the 2003 Cook County assessment rolls to land values in 1913 and 1990. This data set includes the building area of every small (six units or fewer) residential structure in Chicago.

The height of the bars indicates the structural densities: Tall bars have relatively high ratios of building areas to lot sizes. The color of the bars indicates land values: Red bars have relatively high and values. Thus, we should expect to see a large number of tall red bars and low green bars. In general, the two panels do indicate a positive correlation between structural density and land values. The correlation is particularly evident on the north side and along the lakefront. The correlation with 1990 is less clear on the south and west sides. Several elevations in the density surface are not matched by correspondingly high land values. One explanation for these results, which are in line with the reorientation of high-priced areas toward the north side, is that the relatively high densities in these areas are artifacts of a past when those blocks were relatively more valuable and when there were incentives to use the land intensively. The 1913 panel of figure 6 suggests that land values are actually more closely correlated with building densities for 2003 than are the 1990 values. The root of this apparently anomalous result is that building density reflects the economic conditions at the time of construction, and most of the buildings in that part of the city date from long ago. The past continues to exert a major influence on the present.

Conclusion

Olcott’s data provide a clear picture of the changes in Chicago’s spatial structure during most of the 20th century. Never a truly monocentric city, Chicago began the century with very high land values in the CBD, along the lakefront, and along major avenues and boulevards leading out of the downtown area. Values were also high in neighborhood retail areas at the intersections of major streets. By 1939, the north side of Chicago had already begun to display its economic dominance. The city then suffered an extended period of decline, with the CBD holding the only major cluster of high land values in the 1960s. Since then, the city has undergone a remarkable resurgence. High land values now extend over nearly the entire north side, and land values have also rebounded in parts of the south side. Our analysis also shows the strong role that history continues to play in the current spatial structure of the city. A result of this persistence is that land values from a century ago are better than current land values at predicting the density of the current housing stock.

Acknowledgments

The authors thank the Lincoln Institute of Land Policy for generous funding and support, and are grateful to the Centre for Metropolitan Studies at the TU-Berlin for hosting a team of researchers during the project work. Kristoffer Moeller and Sevrin Weights are acknowledged for their great contribution to designing and coordinating the compilation of the data set. Philip Boos, Aline Delatte, Nuria-Maria Hoyer Sepulvedra, Devika Kakkar, Rene Kreichauf, Maike Rackwitz, Lea Siebert, Stefan Tornack, and Tzvetelina Tzvetkova provided excellent research assistance.

About the Authors

Gabriel M. Ahlfeldt is associate professor at the London School of Economics and Political Sciences (LSE) in the Department of Geography and Environment and Spatial Economics Research Centre (SERC).

Daniel P. McMillen is professor in the department of economics at the University of Illinois at Urbana-Champaign.

Resources

Ahlfeldt, Gabriel M., Kristoffer Moeller, Sevrin Waights, and Nicolai Wendland. 2011. “One Hundred Years of Land Value: Data Documentation.” Centre for Metropolitan Studies, TU Berlin.

Ahlfeldt, Gabriel M., and Nicolai Wendland. 2011. “Fifty Years of Urban Accessibility: The Impact of the Urban Railway Network on the Land Gradient in Berlin 1890–1936.” Regional Science and Urban Economics 41: 77–88.

Atack, J., and R. A. Margo. 1998. “Location, Location, Location! The Price Gradient for Vacant Urban Land: New York, 1835 to 1900.” Journal of Real Estate Finance & Economics 16(2) 151–172.

Colwell, Peter F., and Henry J. Munneke. 1997. “The Structure of Urban Land Prices.” Journal of Urban Economics 41: 321–336.

Cunningham, Christopher R. 2006. “House Price Uncertainty, Timing of Development, and Vacant Land Prices: Evidence for Real Options in Seattle.” Journal of Urban Economics 59: 1–31.

Dye, Richard F., and Daniel P. McMillen. 2007. “Teardowns and Land Values in the Chicago Metropolitan Area.” Journal of Urban Economics 61: 45–64.

Hoyt, Homer. 1933. One Hundred Years of Land Values in Chicago. Chicago: University of Chicago Press.

McMillen, Daniel P. 2006. “Teardowns: Costs, Benefits, and Public Policy.” Land Lines, Lincoln Institute of Land Policy 18(3): 2–7.

Responding to decades of poverty, poor housing, inadequate health care, rampant crime, deficient schools, poorly planned infrastructure, and inequitable access to services, citizens in about half of Brazil’s 60 major cities voted in October 2000 for mayors from left-wing parties noted for advocacy, honesty and transparency. These reform administrations are introducing new hopes and expectations, but they inherit long-standing mistrust of municipal bureaucrats and politicians, who traditionally have been lax and often corrupt. These new governments also confront the dismal fiscal prospects of low tax receipts, weak federal transfers, and urban land markets that produce segregated neighborhoods and profound inequalities.

The strongest left-wing party, the Workers’ Party (in Portuguese, the Partido dos Trabalhadores or PT), held on to the five large cities it had won in the 1996 election and added 12 more. These PT governments hope to universalize services, thus bypassing traditional top-down methods and giving residents an active role in their local governments. In the process these governments are reinventing local democracy, invigorating politics, and significantly altering the distribution of political and symbolic resources. The most remarkable case may be Porto Alegre, the capital of Brazil’s southernmost state, Rio Grande do Sul, where the PT won its fourth consecutive four-year term with 66 percent of the vote, an example that may have encouraged Brazilians in other cities to vote for democratic reforms as well.

Porto Alegre, like cities everywhere, reflects its national culture in its land use patterns, economic structure and distribution of political power. Brazil’s larger social system employs sophisticated mechanisms to assure that its cities continue to follow the same rules, norms and logic that organize the dominant society. Because Brazilian society is in many respects unjust and unequal, the city must constantly administer to the effects of these broader economic and political constraints.

At the same time, no city is a pure reflection, localized and reduced, of its national social structure. Any city can bring about and reproduce inequality and injustice itself, just as it can stimulate dynamic social structures and economic relations. To the extent that the city, and especially its government, determines events, then the effects can be positive as well as negative. It is not written in any segment of the Brazilian social code, for example, that only the streets of upper- and middle-class neighborhoods will be paved, or that water supply will reach only the more privileged corners of the city.

Participatory Budgeting

In Porto Alegre, a popular front headed by the PT has introduced “participatory budgeting,” a process by which thousands of residents can participate each year in public meetings to allocate about half the municipal budget, thus taking major responsibility for governing their own community. This reform symbolizes a broad range of municipal changes and poses an alternative to both authoritarian centralism and neoliberal pragmatism. Neighbors decide on practical local matters, such as the location of street improvements or a park, as well as difficult citywide issues. Through the process, the PT claims, people become conscious of other opportunities to challenge the poverty and inequality that make their lives so difficult.

Participatory budgeting in Porto Alegre begins with the government’s formal accounting for the previous year and its investment and expenditure plan for the current year. Elected delegates in each of 16 district assemblies meet throughout the year to determine the fiscal responsibilities of city departments. They produce two sets of rankings: one for twelve major in-district or neighborhood “themes,” such as street paving, school construction, parks, or water and sewer lines, and the other for “cross-cutting” efforts that affect the entire city, such as transit-line location, spending for beach clean-up, or programs for assisting the homeless. To encourage participation, rules set the number of delegates roughly proportional to the number of neighbors attending the election meeting.

Allocation of the investment budget among districts follows “weights” determined by popular debate: in 1999, weights were assigned to population, poverty, shortages (e.g., lack of pavement), and citywide priorities. Tension between city hall and citizens has led to expanded popular involvement, with participatory budgeting each year taking a larger share of the city’s total budget. Priorities have shifted in ways unanticipated by the mayors or their staffs.

Participants include members of the governing party, some professionals, technocrats and middle-class citizens, and disproportionate numbers of the working poor (but fewer of the very poor). This process brings into political action many who do not support the governing party, in contrast to the traditional patronage approach that uses city budgets as a way to pay off supporters. As one index of success, the number of participants in Porto Alegre grew rapidly, from about 1,000 in 1990 to 16,000 in 1998 and 40,000 in 1999.

The participatory process has been self-reinforcing. For example, when annoyed neighbors discovered that others got their streets paved or a new bus stop, they wondered why. The simple answer was that only the beneficiary had gone to the budget meetings. In subsequent years, attendance increased, votes included more interests, and more residents were happy with the results. City officials were relieved, too, as residents themselves confronted the zero-sum choices on some issues: a fixed budget, with tough choices among such important things as asphalt over dusty streets, more classrooms, or care for the homeless.

Participatory budgeting in Porto Alegre is succeeding in the midst of considerable hostility from a conservative city council and constant assault from right-wing local newspapers and television programs, all of them challenging participation and extolling unregulated markets. The municipal government depends for its support on the participants and their neighbors, on radio broadcasting, and on many who resisted two decades of military dictatorship, from 1964 to 1985. In electing four consecutive reform administrations, a majority of the population has managed to pressure a hostile city council to vote in favor of the mayor’s budget proposals, keeping the progressive agenda intact.

Changes in Material Conditions

In 1989, despite comparatively high life expectancy and literacy rates, conditions in Porto Alegre mirrored the inequality and income segregation of other Brazilian cities. A third of the population lived in poorly serviced slums on the urban periphery, isolated and distant from the wealthy city center. Against this background, PT innovations have improved conditions, though only moderately, for some of the poorest citizens. For example, between 1988 and 1997, water connections in Porto Alegre went from 75 percent to 98 percent of all residences. The number of schools has quadrupled since 1986. New public housing units, which sheltered only 1,700 new residents in 1986, housed an additional 27,000 in 1989. Municipal intervention also facilitated a compromise with private bus companies to provide better service to poor peripheral neighborhoods. The use of bus-only lanes has improved commuting times and newly painted buses are highly visible symbols of local power and the public interest.

Porto Alegre has used its participatory solidarity to allow the residents to make some unusual economic development decisions that formerly would have been dominated by centralized business and political interests. The city turned down a five-star hotel investment on the site of an abandoned power plant, preferring to use the well-situated promontory as a public park and convention hall that now serves as the new symbol of the city. And, faced with a proposal to clear slums to make room for a large supermarket, the city imposed stiff and costly household relocation requirements, which the supermarket is meeting. In another example, in spite of promises of new employment and the usual kinds of ideological pressures from the Ford Motor Company, the nearby municipality of Guíaba turned down a proposed new auto plant, arguing along political lines established in Porto Alegre that the required subsidies would be better applied against other city needs. (A state investigation in August 2000 found the former mayor, not “at fault” for losing the Ford investment.)

Nevertheless, daunting constraints in the broader Brazilian economic and political environment continue to limit gains in economic growth, demands for labor and quality jobs. Comparing Porto Alegre and Rio Grande do Sul with nearby capital cities and their states during the years 1985-1986 and 1995-2000, one finds few sharp contrasts. Generally, GDP stagnated, and per capita GDP declined. Unemployment rose and labor-force participation and formal employment both fell.

Given this limited extent of economic improvement, how can we account for the sense of optimism and achievement that pervades Porto Alegre? The city is clearly developing a successful experience with local government that reinforces participatory democracy. We believe the PT’s success lies in the way the participants are redefining local power, with increasing numbers of citizens becoming simultaneously subject and object, initiator and recipient, so they can both govern and benefit directly from their decisions. This reconfiguration is immediately discernible in the procedures, methods and behavior of local government.

After 12 years, Porto Alegre has changed not just the way of doing things, but the things themselves; not just the way of governing the city, but the city itself. Such a claim is clearly significant. Porto Alegre offers an authentic, alternative approach to city management-one that rejects not only the centralist, technocratic, authoritarian planning model of the military dictatorship, but also the competitive, pragmatic, neoliberal model of the Washington Consensus, to which the national government still adheres. This model imposes International Monetary Fund (IMF) orthodoxy and requires such “structural adjustment” imperatives as free trade, privatization, strict limits to public expenditures, and high rates of interest, thus worsening the conditions of the poor.

While most Brazilian cities continue to distribute facilities and allocate services with obvious bias and neglect of poor neighborhoods, the reconfiguration of power in Porto Alegre is beginning to reduce spatial inequalities through changes in service provision and land use patterns. We can hope that the effect will be felt in the formal structures of the city and eventually in other cities and in Brazilian society in general.

New Forms of Local Power

Political and symbolic resources normally are monopolized by those who control economic power, but radically democratic municipal administrations, as in Porto Alegre, can reverse power to block the favoring and reinforcing of privilege. They can interfere with the strict solidarity of economic and political power, reduce private appropriation of resources, and promote the city as a collective and socially dynamic body. In other words, a city’s administration could cease to honor the actions of dominant urban groups-real estate interests and others who use various forms of private appropriation of public resources for their private benefit. These actions may include allocation of infrastructure to favor elite neighborhoods, privatization of scenic and environmental resources, and the capture of land value increments resulting from public investments and regulatory interventions. Thus, a reconfigured, publicly oriented city administration permits access to local power for traditionally excluded groups. Such a change constitutes a quasi-revolution, with consequences that cannot yet be measured or evaluated adequately by activists or hopeful governments.

Are Porto Alegre’s experiences with municipal reform, participatory budgeting and democratic land use planning idiosyncratic, or do these innovations promise broader improvements in Brazilian politics as other citizens build expectations and improve the structure of their governments? The Interamerican Development Bank (IDB) is urging localities throughout Latin America to engage in participatory budgeting, following Porto Alegre’s example. Can reform-minded city administrations override the constraints of international markets and national policy? In recommending the formal and procedural aspects of the participatory budgeting technique, does the IDB overestimate the practical economic achievements and underestimate the symbolic and political dimensions of radical democracy?

The lesson of urban reform in Porto Alegre emerges not so directly in the economic market as in new experiences with power, new political actors, and new values and meanings for the conditions of its citizens. Even as citizens weigh their expectations against stagnating macroeconomic conditions, they can find hope in new visions of overcoming spatial and social inequalities in the access to services. These new forms of exercising political power and speaking out about land use and governance issues give the city’s residents a new capacity to make a difference in their own lives.

References

Rebecca N. Abers. 2000. Inventing Local Democracy. Grassroots Politics in Brazil. Boulder: Lynne Rienner.

Gianpaolo Baiocchi. 1999. “Transforming the City,” unpublished manuscript. University of Wisconsin (September).

Boaventura de Sousa Santos. 1998. “Participatory Budgeting in Porto Alegre.” Politics and Society 26, 4 (December): 461-510.

William W. Goldsmith is a professor in the Department of City and Regional Planning at Cornell University. Carlos Vainer is a professor in the Institute for Urban and Regional Planning and Research at the Federal University of Rio de Janeiro. They participated in a December 1999 seminar hosted by the City of Porto Alegre and cosponsored by the Lincoln Institute and the Planners Network, a North American association of urban planners, activists and scholars working for equality and social change.