Residential Lot Values and the Capital-Land Substitution Parameter – Some Recent Results from the Portland Metro Area

The market value of residential lot size and market response to increasing housing prices have become increasingly important as regional policy makers have sought to limit the size of urban areas. Using sales data on recently constructed homes in the Portland Metro area for the years 1996-97, we have examined the effect of lot size on the sales price of detached and attached single family homes. In addition we have used the hedonic equations to construct an estimate of land value from which we were able to calculate a value of the elasticity of capital-land substitution. Results point to a very low elasticity of home price with respect to lot size of roughly .05 .15. Correspondingly, the elasticity of capital-land substitution compared to several values reported in the literature is relatively high; from .6 .8.