A height limit is reduced from six storeys to three in a downtown zone. What is the likely effect on land values there?
Correct Answer
A) Values fall as development capacity is reduced
Why this is correct: In dense urban areas, land value is largely based on the development rights (like buildable square footage) it carries. Reducing the permitted height from six to three stories cuts the potential building area roughly in half, directly reducing the developer's potential revenue and thus the residual land value they can pay. Why the other choices are wrong: 'Values rise because the area becomes less dense' is wrong; reduced density typically lowers, not raises, land value in a development context. 'Values are unaffected, as height is not an input' is wrong; height is a critical input for development potential. 'Values rise as existing buildings gain scarcity' is wrong; existing buildings may gain value, but underlying land value for redevelopment falls. Exam tip: Downzoning (reducing development potential) typically decreases land value. Upzoning increases it.
Why This Is the Correct Answer
Why this is correct: In dense urban areas, land value is largely based on the development rights (like buildable square footage) it carries. Reducing the permitted height from six to three stories cuts the potential building area roughly in half, directly reducing the developer's potential revenue and thus the residual land value they can pay. Why the other choices are wrong: 'Values rise because the area becomes less dense' is wrong; reduced density typically lowers, not raises, land value in a development context. 'Values are unaffected, as height is not an input' is wrong; height is a critical input for development potential. 'Values rise as existing buildings gain scarcity' is wrong; existing buildings may gain value, but underlying land value for redevelopment falls. Exam tip: Downzoning (reducing development potential) typically decreases land value. Upzoning increases it.
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