TOT Training Kit: Code 110 – Land Economics

1.0 INTRODUCTION

The University of Cambridge board define land economy as “the study of the
principles and policies of the use of land and land resources whether by
political direction or by proprietary enterprise under legal restrictions. It is
derived from a study of economics and law but does not lie wholly within the
boundaries of either of these disciplines as academically understood. It is a
logical academic advance from estate management; sufficient of a departure in
content and principles to require a new title but not so far removed that it must
be thought of as the introduction of an entirely new subject”.

In simple term land economy means the study of the principles and policies of
the use of the land that is subjected to the political will or organization which is
controlled by the law. It is dedicated to the study of land use, natural resources,
public utilities, housing, and urban land issues. Land economics involve
decisions made by individuals on land and building matters. Thus society will
normally be institutionalised to adjust those decisions made by them to suit
society requirement.

2.0 REVIEW OF LAND ECONOMICS CONCEPT

2.1 Agglomeration Economy

Agglomeration may be defined as the concentration of activities for

economic purposes. Most land economic studies will have two types of
approaches, either geographical approaches or economic approaches. It
all depends upon the target readers. Readers that require planning or
geographical aspects will find books or studies that have inclination or
issues pertaining to either one of the approaches.

Urbanisation must have both similar and dissimilar activities. If a

settlement engaged in similar activities, it will not suffice or meet the
urbanisation definition. Hence, in an agglomeration economy the types of

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activities dictate whether it is a settlement or a township. The 1953 AL-

MALAZ project or the 2011 ESKAN program which is a residential-based
development does not by itself qualify as a township.

In 2011, King Abdullah announced a plan to build 500,000 homes in Saudi

Arabia over several years. Some $67 billion of state funds were
earmarked for the plan. The activities involved residential-based process.
The recent move by ESKAN to developed townships with multiple land
uses within the settlement will undoubtedly qualify ESKAN settlement as
an urban township.

2.1.1 The Pull Factors

The formation of township hinges upon both localisation and

urbanisation process. Pull factors are normally factors that entice
people or businesses to migrate or relocate their locations. The pull
factors may agglomerate single types of activities such large land
scheme for example ESKAN housing schemes. Figure 2.1
demonstrates how the pull factors affect urbanisation.

Figure 2.1: Agglomeration/ localisation process

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 TOT Training Kit: Code 110 – Land Economics

An example of the pull factor is the Structure Plan that has areas
reserved for certain purposes. Most zoning in towns involved
residential, industrial, commercial, recreational or mixed uses. This
has direct impact in term of land values or market price of lands. As
land become scarce, the value will also go up. The pull factors do
not necessarily involved planning or economic factors but also in
case of people, social factors also play an important part in human
settlement. As land value is created as a result of supply and
demand factors, pull factors such as zoning, market and potential
price of land and other social factors may entice both residential
and other activities to agglomerate within an area. The plethora of
complementary and conflicting activities causes various pull factors
to band together. This togetherness of activities will either improve
or reduce prices of a location.

2.1.2 The Push Factors

The push factors will normally equate the pull factors when it has
become unbearable for people to stay within a conurbation. The
natural urge to move elsewhere is due to the ability to make
choices. Choices are due to improved purchasing power as people
become self-sustaining in life. Commercial and industrial expansion
force firms to relocate to increase productivity or paying less tax.
Some development like hypermarket requires large tracts of land
for customers parking. This can be seen in hypermarket for
example CARREFOUR KSA, FAWAZ ALHOKAIR. These
hypermarkets are highly specialised retailers. The success of large
superstores, have driven development to be located in out of towns
locations. Sites that have smaller land area accommodate smaller
shopping centres.

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Figure 2.2: Localisation and urbanisation process

2.1.3 Conditions for Agglomeration

Certain conditions are needed for agglomeration to thrive.

Surprising most of the conditions are social, technology and
finance based. This means that apart from economic dominant of
urbanisation there are also other non-economic factors that depict
the formation of township.

i. Potential Size of the Local Market

An area to strive and thrive must have a certain threshold

capable of supporting the populace. It is in this respect an
urban containment should contain enough population with
good purchasing power. There are some town with large
population but with poor purchasing power. This does not
contribute to urban expansion but will eventually lead to
inner city problems for example slums, poverty and housing
deprivation.

Basically the larger the town the higher is the externalities.

Externalities or better known as impact may be classified

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into two extreme types; positive externalities and negative

externalities. Marginal externality may not been encountered
in any literatures pertaining to land economics. If research
carried out to investigate these phenomena, an inductive
approach will be more suitable as positive and negative
theoretical assumption has been widely investigated.
Economics research will find that quantitative approaches
will be more suitable to carry out this theme. Externalities
will be dealt separately in subsequent notes.

Another bone of contention of market size is economies of

scale.

Basically firms operating in a large scale grow backward to

control raw materials and forward to control outlets. Honed
by oligopolistic competition these firms capitalised first
mover advantage to capture markets. It is in this respect that
economies of scale guided by strategic management, firms
acquire cost advantages over competitors by controlling a
segmented market. However smaller firms may find that
economies of scale may not be to their advantage due to
market thresholds.

Market threshold depends upon market size and purchasing

power. Figure 2.3 depicts that cost decline as production
increases but will steadily remain at a certain costs but will
never realistically dive to zero. However after a certain point,
price start to increase as complexities in management
began to build up. This is due to acquisition of more fixed
assets such as land and machinery. The situation warrants
certain firms to remain at an optimal size. This cost control
strategy sometimes is difficult to manage as cost will
undoubtedly increase. Similarly the issue of inflation,
resources becomes more scarce and more recently in

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Malaysia the demand for minimum wages among workers

by trade unions.

Figure 2.3: Economics of scale

ii. Geographical Concentration of People

Under King Salman, further change is in the works. In his

first major speech on domestic and foreign policies, he
called for new programmes to promote national unity and
economic development. He indicated the need to provide
more job opportunities in both the public and private sectors
and for more medium and small enterprises. He did not
mention expatriate workers. It is obvious that the paramount
need is to guarantee jobs for Saudi graduates. Roughly 45
per cent of university students are studying subjects that do
not have a technical or vocational focus to prepare them for
the job market.

The Ministry of Education’s Doroob programme aims to

match education with the labour market through courses
such as interpersonal training, English language skills and
computer skills. Training courses for specific jobs, such as to

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be a retail sales assistant, hotel front desk clerk and IT

support assistant, are also available. Both Musaned and
Doroob are meant to provide the bridge between a Saudi
Arabia reliant on expatriate workers and one with a Saudis
workforce, but the demands of Saudisation have made for
some confusing signals.

Some analysts, both Saudi and foreign, are saying the

kingdom is trying to match other gulf states that are
reassessing how long expatriates can work. However loss of
expatriate workers may hurt Saudi economy in the long run.

iii. Availability of Skilled Worker

A new generation of independent, transient and globalized

workers in the burgeoning knowledge economy is creating
new rules around hiring and engagement. Human resource
has undergone evolution from the model prevail from the
post second world war.

This model was forged in the 1940s where the influx of

military officers which have their roots and expertise in
supply chain and logistics. The business transformed in the
1960’s and 1970’s using this paradigm is no longer sufficient
because employee relation, performance appraisal, training
and recruitment has move beyond transactional task. There
were interest using IT and could liberate the Human
resource people from routine task. The right fit with job
description dominate this era undoubtedly moving
professional towards higher value tasks.

The next wave of activity is about talent. Those who can

bring education and occupational skill to an organization can

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make an immediate and lasting impact. The issue of

shortage of labour points to shortage of qualified people.
Figure 2.4 demonstrates world fertility rate that lead to a
paradox where industrialised country are facing shortage of
talent due to their low fertility rate. This cannot be matched
by developed countries as the fast growing populations do
not have educational infra structure to develop a level of
skim labour. This paradox has led to limited global pool of
skilled labour. Again, this is not a shortage of people but a
shortage of qualified people.

Figure 2.4: Decreasing fertility rates present risk for human resources
especially in developed countries.

iv. Managerial and Entrepreneurial Talent

There is no generally acceptable definition of

entrepreneurship definition. Researchers are requested to
provide own definitions of entrepreneurship. For the purpose
of this book entrepreneur is interpreted as the examination
on the quality of owner-manager in turning strategic

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resources in improving the competitiveness of the firm.

However this definition is too far stretched in term of basic
entrepreneur definition. The notion of operative
entrepreneurship definition is that value laden individual that
has the capability and ability to turn strategic resources into
a profitable entity. The inclusion of developing an individual
that possess necessary characteristic of entrepreneurship
was incorporated to build a resilient, long term business
relationship. Some are opportunist, selling their businesses
once it reaches maturity.

Some developed trend that ‘ends justify the means’

producing low quality products at the expense of consumers.
Despite the country's stiff appearance, the Saudi Arabian
General Investment Authority has managed to turn the
country into an ideal destination for business and
entrepreneurship thanks to simplified measures and many
associated benefits such as the lowest average tariff rate in
the Middle East and North Africa (MENA). Moreover, local
authorities have reduced the port handling fee by 50% in
2008 so as to further encourage entrepreneurship. Note that
Saudi Arabia has been listed as the MENA region's best
country to do business by the World Bank. In fact, the
country has remained faithful to private companies' liberal
political traditions. In other words, foreign investment laws
allow foreigners to hold 100% ownership of their projects,
even when it comes to real estate.

Finally regarding competitiveness, Saudi Arabia's fiscal

environment includes low taxes and numerous incentives.
For years, many foreign investors have benefited from its
financial freedom. In addition, the stability of the Saudi
currency, indexed to the US dollar, gives no restriction

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whatsoever in terms of foreign exchange or profit

repatriation for foreigners.

v. Pool of Skilled Workers

Human capital in Saudi Arabia is built on firm foundations: a

strong schools system, based on small class sizes
averaging 11 students and the world's advanced ranking in
government spending on education. Saudi Arabia has an
extensive network of further education and higher education
institutions, including more than 80 vocational colleges, 25
public universities, eight private universities and 20 private
colleges. Vocational training is being greatly expanded: in
2009, some 94,000 students graduated from 80 vocational
and technical colleges; by end of this year 2015 the annual
number of vocational-course diploma graduates is expected
to reach 450,000.

Over half of Saudi Arabia’s 9.7 million-plus employees are

expatriates, including highly skilled professionals and low-
cost workers. For decades non-nationals have been
welcomed in Saudi Arabia’s open, dynamic economy and
now make up 28%-33% of Saudi Arabia’s population.
Human capital in Saudi Arabia is built on firm foundations: a
strong schools system, based on small class sizes
averaging 11 students, and the world's advanced ranking in
government spending on education.

Saudi Arabia has an extensive network of further education

and higher education institutions, including more than 80
vocational colleges, 25 public universities, eight private
universities and 20 private colleges. Vocational training is
being greatly expanded: in 2009, some 94,000 students

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graduated from 80 vocational and technical colleges; by end

of this year 2015 the annual number of vocational-course
diploma graduates is expected to reach 450,000. Over half
of Saudi Arabia 9.7 million-plus employees are expatriates,
including highly skilled professionals and low-cost workers.
For decades non-nationals have been welcome in Saudi
Arabia’s open, dynamic economy and now make up 28%-
33% of Saudi Arabia’s population.

vi. Greater incentive for innovation

In its quest to diversify its economy, attract foreign

investment and tackle unemployment, the Kingdom of Saudi
Arabia (KSA) embarked on developing four new ‘economic
cities’ under the principles of smart city planning. The new
cities are overseen by the Saudi Arabian General
Investment Authority (SAGIA), a governmental agency
established in 2000 to act as a gateway to investment in the
KSA.

Knowledge Economic City (KEC) is another one of the four

intelligent cities to be developed in the KSA. KEC is located
just outside the holy city of Medina, serving as an alternative
Central Business District for the existing city. It spans an
area of 4.8 square kilometres, expected to host a population
of 200,000 people. The venture’s vision is to ‘attract Muslims
from around the world’, focusing on knowledge-based
industries, tourism and services. The development cost is
approximately $7 billion. The land for the development was
provided by the King Abdullah Foundation. The project is
being developed by Knowledge Economic City Developers,
a consortium of companies established for this purpose.

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On the governmental side, the Economic Cities Authority is

the prime development facilitator; it acts as the one-stop
Government servicing centre for the development of KEC. In
matters of smart city infrastructure, CISCO will undertake
the design and implementation of the network infrastructure
and connected city services; the city will be wired with high-
speed broadband infrastructure, while all urban operations
will be managed through Integrated Operations’ Centres,
meant to act as the ‘brain of the city’.

The master plan includes a complex for technology and

knowledge-based economy, technological and
administrative colleges, an Islamic Civilization Studies
Centre, a Campus for medical studies, biological sciences
and health services, a business centre, a commercial plaza
and residential areas. The project started in 2006 and was
initially expected to be complete in 2020 (now extended to
2025). Some parts are currently under development.

3.0 REVIEW OF MICROECONOMIC ANALYSIS

3.1 Consumer Surplus

This is the difference between what the consumer pays and what he
would have been willing to pay. For example: If you would be willing to
pay 500,000 riyal for a condominium, but you can buy for 400,000 riyal; in
this case your consumer surplus is 100,000 riyal.

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Figure 3.1: Diagram of consumer surplus

The demand curve shows the maximum price that a consumer would
have paid. Consumer surplus is the area between the demand curve and
the market price. If the demand curve is inelastic, consumer surplus is
likely to be greater
 Monopolies are able to reduce consumer surplus by setting higher
prices
 Price Discrimination is an attempt to extract consumer surplus by
setting.

3.2 Economic Rent and Transfer Earning

The whole idea between economic rent and producer surplus is almost
identical. Economic rent is measured in term of input while producer
surplus is measured in term of output. They are similar in concepts based
on the idea that someone may gain something beyond what would accept
otherwise. With economic rent it is the excess attributed to factor of
production, with producer surplus, it goes to the company in terms of
earnings from selling at a higher market price that the company was
willing to charge. Transfer earning maybe define as the minimum payment
needed to prevent a factor of production (land) from moving to another
uses.

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Figure 3.2: Depiction of economic rent and transfer earning

SAR 9 (commercial rent) - SAR 4 riyal (transfer earning) = SAR 5 riyal
(economic rent or consumer surplus/opportunity cost)

Figure 3.2 depicts the notion of economic rent and transfer earning.
Economic rent refers to income earned from a factor of production in
excess of their transfer earning. Ricardo’s economic rent is basically the
different between production cost and market price. A more modern view
of economic rent is through the understanding of opportunity cost. The
change of use for land is a typical example of this concept. A land will
need 4 riyal to keep in its existing use, thus in order to change to best next
use, the land will need 9 riyal. Thus the payment beyond that opportunity
cost or transfer earning is economic rent.

3.3 Ricardo Theory of Land Rent (LAND VALUE CONCEPT)

The Ricardian Theory may be illustrated through Table 3.1 below:

Table 3.1: Production and rent

Grades of Land Total Product Rent
TP – TP of D
(metric tonne) (metric tonne)
A 100 100 – 40 = 60
B 80 80 – 40 = 40
C 60 60 – 40 = 20
D 40 No rent

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The table shows that the rent of A, B and C grades of land are 60, 40, and
20 metric ton respectively. D is the marginal land. The theory can be
illustrated with the figure below:

Fig
ure 3.3: Rent determination

In Figure 3.3, the four grades of land of equal area A, B, C and D has
been shown along the OX axis. The yield of these lands has been shown
along the OY axis. The corresponding rectangles of A, B, C and D show
their respective yields, that is 100, 80, 60 and 40 metric tons of wheat.
The shaded area of each rectangle shows their rent. Since D is the
marginal land it has no rent. The marginal land thus plays the decisive
role in the determination of rent.

3.4 Law of Diminishing Marginal Utility or Marginal Returns

The law of diminishing utility was first coined by A.R.J Turgot in the 18th
century and later improved by Thomas Maltus, Edward West, Robert
Torren and David Ricardo which later developed the idea. It is the fixity of
the supply of land which sets the law of diminishing return in motion. In
short period some factors are fixed and given. When other variable factors
are combined with this factor in increasing proportions, this fixed factor is
distribute on the units of variable factors. After an ideal combination the

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proportion of variable factors to fixed factors become high. That is why

diminishing return occurs.

The real intention of the law of diminishing marginal utility is to relate the
balance between factor of production i.e. capital, land, and labour. If the
combination of this factor of production exceeded a certain level, the
output may not match the inputs being assembled. Thus a balance is
needed to achieve the highest and best use of a particular piece of land.
The graphs in Figure 3.4 illustrated below explain further:

Figure 3.4: Diminishing marginal utility

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When more units are taken, the utility or satisfaction starts to fall. As more
units are added, the utility may reduce to negative and the graph
appeared to be kinked at this point as shown in the above graph. The
significance of the diminishing marginal utility of a good for the theory of
demand is that the quantity demanded of a good rises as the price falls
and vice versa. Thus, it is because of the diminishing marginal utility that
the demand curve slopes downward.

4.0 REVIEW OF URBAN LAND USE THEORIES

Models are used to depict towns and cities and show a general idea of the
shape of the city. During the 20 th century a number of models have been
developed to demonstrate how township grew. The idea of a model town was
first coined by Heinrich Von Thunen (1783-1850) in 1826.

4.1 Von Thunen Agricultural Model

Von Thunen model (Figure 4.1) was developed before the industrial
revolution. The following assumptions stipulated that it is a self-sufficient
township which has no external influences. Furthermore, land is of equal
fertility and farmers sent their produce using oxcarts since there are no
roads. The concentrations of perishable produce are located in the middle
of town where there is a concentration of people. Logically vegetable and
dairy produce are located in the middle of the town, because there is no
form of refrigeration or cold storage during the late nineteen century. The
other forms of land use in Von Thunen’s model signify the need of fuel for
cooking and heating where forest circulates the township. Other forms of
land use demonstrate the planting of rotational grains harvest, while the
periphery focused on ranching and animal husbandry. The central city
was well connected to a river as this is the main transportation for people
and ferrying goods. Von Thunen’s agricultural model set the pace for
subsequent modern land use models.

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Figure
4.1: Von Thunen Agricultural Model

4.2 Concentric Model

Burgess (1925) after observing American cities obtained empirical

evidence by presenting a representation of a descriptive urban land use.
This model links income (socio-economic) of the population and distance.
The model assumes that people will stay nearer to town centres to gain.
According to Burgess, the expansion and reconversion of land uses which
a tendency to force outward in a set of concentric circles from CBD to the
suburbs. In Zone 1, the CBD which is the most accessible is where all the
transportation utilities converged.

Figure 4.2: Concentric model

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This focal point of the city accommodates most of the cities employment
and administrative centres. Zone 2 adjacent to CBD, lies the industrial
sites. This portion of the cities takes advantage of port-sites and railway
infrastructures for example dry ports to transport both perishable and raw
materials in bulk. Zone 3 lies the poorest segment of the township. During
the 1930’s workers unable to pay high commuting costs choose to stay
nearer to their manufacturing workplace. However, history has shown that
these areas are predominantly occupied by poor immigrant workers. Zone
4 lies the second generation of immigrant workers who successfully move
away from the previous zones. This zone is also occupied by working
class people with lost cost housing. Those who can afford to pay the
higher commuting cost occupied Zone 5 which represents higher quality
housing. Zone 6 is represented by high class and expensive housing. This
caters for the rapid diffusion of automobiles in the 1930s.

This model was criticised on the basis that township consisted of mix
development and contrasted from Burgess uniform concentric
development. In some European cities the CBD is the most important
activities compared to Burgess Model. However, this model demonstrated
that towns or cities are made up of multiple land use. The main point is
that similar uses are clustered and compatible. The significance of
Burgess Representation is that it almost replicates some major township
patterns in Mecca. The radial-concentric plan considers the Great Mosque
as point of convergence. Radials are the path privileged by pilgrims to
reach the mosque. High quality housing is found nested in the suburbs,
while low cost flats or apartment are located within the CBD boundaries.

4.3 Radial Model

Radial model is an adaptation of concentric model, the numbered ring-

linear zone are similar to Burgess Model, the main different is the
topography of the sites which do not allow for spatial distribution of land
uses. Development is located along major routes. The linear pattern of

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development takes advantage of accessibility, which is either egress or

ingress. Some linear pattern take place initial either at the ingress or
egress of routes. This will depends upon the ease of accessibility,
highways that are deprived of entry and exit has most of the development
at entry and exit points (Figure 4.3).

Fi
gure 4.3: Linear Model/Radial Model/Axial

Route that has the advantage of access usually will have development
along the routes. It is surrounded by main Makkah-Jeddah highway from
North and extension of Ibrahim Al-Khalil Road and road to Laith, South of
Jeddah on the Red Sea coast to the South. The project site is comprises
of two areas “A” and “B”, with total area of 131 hectares as follows:

 The Northern Area (Area A) consisting of 68 hectares is planned

for Lower Income Housing in the form of high density apartment
buildings. The design, at this area, incorporated four different
residential types and ended in reaching about 2550 different
dwellings allocated on 220 Plots.

 The Southern Area (Area B) consisting of 63 hectares is planned

for a low density, secured residential compound of single family

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housing. The design, at this area, incorporated similar plan of

duplex villa with four different alternatives for the elevations, and
ended in reaching about 750 Villa within the compound. The two
housing areas (Area A&B) are separated by an east-west linear
parkway, as indicated in the overall Master Plan. North and South
of the Bawabat site, further urban growth is possible. This has the
potential to establish the area as Makkah’s major location for future
urban expansion. The large subdivision immediately to the South of
the Bawabat site is already under development. This is
predominant to small urban towns with potential growth due to
population and, religious activities.

4.4 Sector Model

Sector model (Figure 4.4) was developed by Homer Hoyt a land

economist in 1939. The model develops in a series of sectors not rings.
The model postulated that classification of zoning depends upon class
discrimination. Low income housing is located near heavy industries to
provide easy access to workers. High income housing is placed further
away from heavy industries as these types of people prefer peaceful,
privacy and devoid of traffic congestion. The diagram shows that during
the 1930’s railway, tram, sea ports form the main mode of transportation
cut across the CBD. Hoyt theorized that cities tended to grow in a wedge-
shape pattern where there is a concentration of commercial activities in
the CBD. Other uses such as housing and manufacturing would develop
in a wedge shape surrounding transportation lines. The core argument for
this model is that the upper class has influence on their choice of sites
and they are located away from pollution and congestion.

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Fi
gure 4.4: Sector model

CBD is centred on main transportation routes, thus land values are high
along main transportation routes. High accessibility means high land
values. To a certain extent, this model can be applied to Calgary, Canada.
The layout of Calgary indicates the majority of the city's high cost housing
in a narrow wedge with growth along the Elbow Valley. Slums were
established in the 1930’s outside the city but close to street car station.
These are now incorporated in the city boundary, however are still
pockets of low cost housing within the middle income housing.

4.5 Multiple-Nuclei Theory

The multiple nuclei model is developed by Harris and Ullman in 1945, and
is the most complicated of the four models mentioned. This is the only
model of the four that described and give insights into the growth of cities
in the developing countries.

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Figure 4.5: Multiple Nuclei Model

The multiple nuclei theory was formed based on the idea that people are
free to move due to increase of car ownership. This model suggested that
a city grows from several independent points as a result of activities of
land uses for example industry, commercial, rather from one single CBD.
When cities expanded, this will merge to form a single urban area.
According to Harris and Ullman, the use of separate nuclei and
differentiated district is a product of the combination of four factors:

1. Some activities require specialised facilities

For example retail area must be linked by intra-city accessibility,
port facilities must have suitable water-front, while manufacturing
need large tracts of land. The model suggested that in order for
these activities to function well, access to transportation facilities
should be given priority. The planning bye laws must be adhered
so that there is no conflict of motorised route to avoid large trucks
using residential areas. The conflict of access routes maybe seen
in towns where heavy vehicle use residential roads, inevitably
contribute to congestion, and accidents which is a social cost to
society

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2. Some activities complement each other because cohesion entails

profitability
Urban activities such as retail will grouped together as it will be
convenience for customers to go for a shopping spree and
compare prices before they decide to buy. Other uses such as
financial institution need commercial, retail and offices to
complement their existence. Business entities will need financial
facilities to expand as well as a keeper of business revenues.
Related to financial facilities are the legal and clerical services
which will speed up transaction.

3. Some activities do conflict with each other

Conflict in urban land use activities often lead to negative
externalities or social cost that will be borne by society. Heavy
concentration of vehicles, congestion will make education facilities
deemed unsuitable as noise will be the main distraction. In similar
vein, depreciation of land value of properties resulted in lack of
demand or downward sales for property development. The ideal
way of locating activities and enhancing value is to complement
uses and having a system of separation of transportation route.
The current transportation route in Saudi Arabia cater for all types
of vehicles, in addition there is no system that manage the timing of
heavy vehicle usage. These have an impact of road safety and
speed of transporting products which is an added cost to society
and business.

4. Some activities do not deserve paying high rent of the most

desirable areas
Some land uses for example low cost housing do not deserve to be
located in strategic areas since it is best reserve for uses that have
the highest and best use. There are also activities of storage and
warehousing that should not occupy land that is best use for retail
activities. The Saudi law on antiquities, museums and built heritage
approval coincided with the recent inclusion of the Jeddah

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Historical Area in the UNESCO World Heritage Site list,

recognizing the old city’s cultural value and unique model with its
distinguished urban heritage. Historic Jeddah, the Gate to Makkah,
was among the 26 new inscriptions decided at the 38 th session of
the World Heritage Committee of the UN Educational Scientific and
Cultural Organization (UNESCO), held in Qatar (15-25 June 2014).
UNESCO’s decision highlights the Kingdom’s historical position
and its rich heritage and shows the depth of the Kingdom’s culture
and interaction with human civilizations throughout the centuries.

4.6 Alonso Theory

Alonso’s extend his thesis on Von Thunen’s agricultural model into urban land
use. Basically Alonso Bid-Rent theory is a geography economic theory that
refers how price and demand for real estate changes as distance from the
Central Business District increase or decreases. However, for the ease of
explaining the relationship between rental and distance, an improvise version of
Alonso may be explained. As distance diminished from the CBD, residential
rental also decreases and vice versa (Figure 4.6). During Von Thunen days,
rental of land depends upon the fertility of the land, the further from the centre
of the town, the lower the value of the land vis-a-vis the rental value. On similar
basis, Alonso suggested that as intensity of land use diminished from the CBD,
rental gets lower. Some argue that as land uses start to get further away from
the CBD rental reciprocates distance. For example, if a person home is located
about 25km from the CBD, the rental will drop to 400 riyal per month, ceteris
paribus (other things remain equal).

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Figure 4.6: Alonso’s Bid Rent theory

On the contrary, if the same person home is located about 5 km from CBD,
rental will increase to 1500 riyal per month, ceteris paribus however, modern
land uses will normally equate to highest and best use provided that it is allows
under zoning conditions. The world’s largest hotel is being planned for Mecca,
Saudi Arabia, a remarkable structure that will rise out of the desert and
apparently contain 10,000 rooms for worshippers. The hotel will be part of a
mixed-use development at Abraj Kudai, a $3.5bn (£2.25bn) project intended to
look like a desert fortress, that encompasses a ring of towers standing on top of
a podium.

Alonso Bid-Rent function depicts that land which have high accessibility will be
occupied by retailers. The second less expensive will need larger tract of land
will be reserved for manufacturers. Hence, land which is cheaper will be
dominated by those who are willing to commute and having much lower rent
than those who stay much neared to the CBD but lower commuting cost.

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4.7 Central Place Theory- Walter Christaller

The theory was first developed by the German geographer Walter Christaller
(1933). The main idea in his theory is to test the relationship between
economics and geography. His research concludes that people gather because
their intention is to share goods and services and by grouping together it is just
for pure economic reasons. Cities formed hierarchy where the largest city will
be 21 kilometre apart between A and A. The second largest will be from B to B
at 12 kilometres distance. Township or village i.e. from C to C will be 75 meters
apart (Figure 4.7).

Figure 4.7: Central place theory

The hierarchy of the cities and towns are dictated by the variety of commodities
which means that the higher the hierarchy of the cities and towns, the larger the
variety of goods and services (Figure 4.8).

Highest order X
High order X X
Low order X X X
Lowest order X X X X
Village Town City Regional
Region
Figure 4.8: Hierarchies of cities/towns

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Christaller’s central place theory (Figure 4.9) consisted of two concepts (1)
threshold (2) range of goods and services. From these two concepts the lower
and upper limit of goods and services can be found.

Figure 4.9: Christaller’s central place theory

Christaller, suggested that a hexagonal shape of the market because circular

shape will result in either un-served or over-served areas. Hence the new
shape will result in fewer high order larger cities and towns in relation to the
lower order towns and villages. To sum on Christaller‘s, the size of a city
depends upon market area that serve goods and services. The people that buy
goods and services would normally divide their demands based on needs and
wants. Those goods in the need list will normally be within the vicinity of the
populace. The wants list will depends on the higher order goods that are
available within few kilometres or further away from customers home. Luxury
goods such as cars, jewellery, and quality furniture are found in regional or
larger cities, however, necessities are sold within villages or towns. Goods or
services are supposed to be having a one way order of ranking, because as
goods or services become complex, the availability is highly correlated with the
higher catchment areas of regional or cities.

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5.0 REVIEW OF PRIMARY LAND USES

5.1 Residential

The pattern of residential development within the context of township has

been the subject of an extensive literature. The factors that determine the
specific location of residential development from among the number of
potentially suitable sites available may be listed below:

a. Physical suitability for development: slopes, soils, hydrology, land

availability
b. Legal restrictions, government regulations (zoning and other land
use controls)Existing land use patterns and location of other
residential development
c. Access, including proximity to interstate highways
d. Distance to employment sources
e. Distance to shopping
f. Availability of amenities (water, restaurants and shopping, golf,
parks)
g. Neighbourhood factors: age of surrounding housing stock, schools,
crime
h. Monetary policy for example incentives, and interest rate.

5.1.1 Supply Factors

Building new houses allows the residential property market to

adjust to increased demand. In the long run supply will respond
such that house prices tend towards the cost of new construction,
which comprises the costs of the land on which new houses can be
built, the costs of materials and labour required, and the associated
financing and consenting costs. The cost of new construction
determines both the equilibrium level of house prices in the long-
term and the incentive for new houses to be built in the short term.

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The number of houses built in a given period – and what this

means for house prices – depends crucially on the responsiveness
of housing supply. Geographical constraints on land availability can
be important in some places. If people expect demand to increase
in the future, house prices will tend to increase by more in
geographically-constrained areas where people want to live. This
will be particularly the case if the population is relatively immobile,
whether due to preferences or the existence of one dominant city.
When people can move easily, cities that face geographic or
regulatory constraints will see less sustained and smaller long-term
house price increases.

5.1.2 Demand Factors

The market to purchase property is much more than a market for

accommodation. Demand to purchase a house is influenced by a
range of factors, including the expected future costs and benefits
associated with owning that property. Many of these payoffs are
uncertain. Expectations of future house prices and mortgage
interest rates influence how much a person is willing to bid for a
house today. The more binding or pervasive supply constraints are,
the more an increase in demand will result in rising house prices
rather than increased building activity. In the long run, supply will
respond to rising house prices, and house prices will return towards
their equilibrium level, which is partly determined, by regulatory
factors. But house prices can be subject to speculative dynamics in
the short term: rising house prices can give rise to increased
expectations of future house price appreciation, amplifying the
increase in prices. This can occur even if there is no change in the
number of households wishing to purchase a home. Potential
purchasers will just bid more aggressively than otherwise.

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5.2 Commercial

There are about 12 factors that influence value in real estate investment:

a. Location- This is the most important for all forms of real estate. It is
said that location, location, location is the answer to site selection.
b. Highest and best use
c. Cyclical demand
d. Marketing time
e. Market driven value
f. Site vs. improvement
g. Lease value
h. Financing
i. Zoning
j. Taxation
k. Competition
l. Demographic
m.Vehicle impact

Accordingly there about 4 factors that will determine urban land use:
 General Accessibility: This means the advantage of particular
location in terms of movement cost and it largely depends on the
transport facilities. The centre of the urban area has the greatest
general accessibility and great demand for different land uses.
 Special accessibility: This refers to the matter of complementary
uses. That means complementarily land uses tend to cluster to get
the advantage of agglomeration.
 Complementarily may have different aspects. Shops selling
comparison goods are clustering together to tap each other’s trading
market and enhancing the reputation of the locality for a particular
good through greater choice offered to customers.

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 Additional Factors: i. Historical Development ii. Topographical

features iii. Size Dynamic Changes: Changes in real income and
technical development both have an effect on the pattern of urban
land values. On the demand side, with the ownership of the car and
new retailing techniques, there is an increase in the land values in
the suburbs relative to the inner urban area. Institutional Factors:
Central government and Local government can influence the
location decision through policies, taxation, and infrastructure.
Commercial location can be categorized by various functions of the
land use. In this case different kinds of goods and shops need to be
identified and classified accordingly; (i) Specialty goods for example
Jewellers, Oriental carpets, Work of arts, Ladies fashions, Musical
instruments. (ii) Shopping goods for example. Furniture, Carpets,
Coats, Dresses, Cameras, Radio &Television (iii) Convenience
goods for example Groceries, Fruits & Vegetables, Confectionery,
Tobacco and Newspapers, Hardware. The type of goods sold
influences the shop location. Specialty and shopping goods are
purchased frequently and irregularly but account for a significant
proportion of people’s income and usually high income elasticity of
demand.

5.3 Industrial

Industrial site selection factors may be divided into a) Physical b) Socio

economic (human) factors. As a general rule older industries demonstrate
that physical factor as the main deciding factor, while newer industries are
based on economic factors.

Physical Factors Socio-economic Factor

a. Accessibility a. Capital
b. Climate b. Communication
c. Land c. Government policy
d. Power d. Labour supply

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The chief factors influencing the choice of location of most industries have
been access to a suitable labour market and to adequate transport
facilities, whether road, rail or port. Other factors affecting special types of
industry include access to adequate power, water and effluent disposal
facilities where industries are heavy users of power and water; proximity
to distribution centres or to other allied industries; and isolation from
residence and other industry where the processes of manufacture are
dangerous or offensive.

5.3.1 Labour

The general shortage of industrial labour throughout Saudi Arabia

has probably been the dominant factor in determining the location
of most new factories, especially in the lighter range of industries.
Clothing, textiles, light engineering and plastics are all fields that
have shown a tendency to decentralise in search of new sources of
labour in the growing outer suburbs. The trend is strongest in
clothing, textiles and plastics which depend mostly on female
labour, and follows the pattern of establishing a series of small
factories in outer suburbs to attract and absorb local labour.

Most industries tend to draw labour from a fairly wide area,

although in general, most factory labour is obtained from the
surrounding industrial districts. It has already been shown that most
of the unskilled manual labour force lives in the central, northern
and western suburbs, and most of the administrative and clerical
labour in the eastern and southern suburbs, while the skilled
manual labour force is more evenly distributed throughout all
districts. In general, skilled factory and administrative labour is
much more mobile and is drawn from a wider area than unskilled
labour.

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5.3.2 Transport Facilities

With the constantly growing importance of motor transport to all

sections of industry, good access to main roads and highways is a
vital factor in the location of all industry. In general, industries
whose metropolitan transport costs form a high proportion of total
production costs require more centralised locations than industries
whose transport costs are lower. The majority of service industries
involving metropolitan distribution such as newspaper
establishments, biscuit, ice-cream and canister manufacturers,
large bakeries, dry cleaners and milk pasteurisation plants
endeavour to secure a central location. Of the heavier industries,
timber and joinery, cardboard and paper mills, and sections of the
automobile and oil industries also need locations which minimise
transport problems. Relatively few sections of industry today need
direct access to a port.

The advent of motor transport and other modern methods of

handling bulk cargoes, such as pipe lines and conveyor belts, have
resulted in a more economical use of port space, and have enabled
many industries which formerly required sites immediately
alongside port to move from the waterfront. Where goods have to
be offloaded from ships on to some form of motor transport, it is
normally just as easy for a vehicle to transport the goods two miles
as a hundred yards. It is normally uneconomic for a ship to berth at
a private port when it carries a mixed cargo, and therefore, unless
an industry is sufficiently large to charter a complete shipment for
itself it does not normally require direct access to a wharf.

The industries which have the highest demand for direct port
access are those receiving or despatching complete bulk
shipments of materials by sea, such as certain of the basic

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chemical industries like fertiliser manufacture and sugar refining.

The oil industry depends on bulk shipments of crude oil and
petroleum from abroad and requires direct connection by pipe line
from oil berths to storage tanks. The timber industry receives most
of its timber by sea in bulk shipments, and it is desirable that the
larger distributing organisations at least be located as close as
possible to the timber port because of the heavy bulk freight
involved.

5.3.3 Power, Water, Effluent Disposal

Most heavy industries are big users of electric power according to

size and continuity of operations. The following industries are
relatively heavy users of water and most require special effluent
disposal facilities:—basic chemicals, paper and cardboard, textiles,
dyeing and dry cleaning, breweries, milk pasteurising and bottling,
soap manufacturing, tanneries, and certain food products, spinning
and weaving.

5.3.4 Distribution

Most service industries such as large bakeries, dry cleaners, biscuit

and ice-cream manufacturers, milk pasteurising establishments,
newspaper houses and large timber yards, because of their
function of direct distribution, require to be reasonably centrally
located in respect to the region they serve to avoid excessive
transport costs.

Other industries, such as printing establishments, tanneries,

foundries, certain specialised engineering establishments and
furriers, require being centrally located in relation to the range of
industry dependent on them. Other industries need to be near

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those to which they are closely linked—e.g. meat canners near

abattoirs or slaughter yards, automobile parts manufacturers near
large automobile assembly plants, canister manufacturers near
canning plants. Once a major industry has been established
dependent industries naturally tend to congregate around it. This
pattern of linkage is a complex one, and has a very important
bearing on traffic and the whole economic functioning of industry.
The decentralisation of certain industries could increase traffic and
transport costs, and the problem of industrial decentralisation even
within the metropolitan area must be approached with care.

Author : Ridzuan Md.Taib Bsc EM (Newcastle Upon Tyne) Master of Business Administration
(Charles Sturt Australia) Master of Land Economy (Aberdeen)

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