Bid Rent Theory

Planner Kashif Khan

1. Bid Rent Theory
Presented by
Muhammad Kashif Khan
Department of Urban and Regional Planning

2. Theory
First theoretician of bid rent effect
was David Ricardo
Later developed by J.H von Thünen,
who combined it with the notion of
transport costs.
Thismodel,introducedby
WilliamAlonso, in 1964
wasinspiredbyVonThünen'smodel.

3. Background
•This theory has been drawn on concept
from microeconomics and is based on
the work of Alonso (1964) & Muth
(1969). This theory focuses on how the
land use patterns are determined by
the land values. these are further
dependent on the transportation costs
& accessibility.

4. Bid Rent
Theory
The Bid rent theory is a Geographical economic
theory that refers to how the price and demand
for real estate change as the distance from the
central business district(CBD) increases.
This is based upon theideathat
retailestablishmentwish tomaximizetheir
profitability,so theyare much more willing
topay morefor land close to the CBD and less
for landfurtherawayfromthisarea.
Thistheory is based u[on the
reasoningthatthemore accessible an area( i.e.,
thegreaterthe concentrationof customers),the
more profitable.

7. Sectors
Commercial Sector :Willing to pay the
maximum/ greatest rent to be located in the
central business district (CBD).
Industry Sector: Requireda
largearea(moreland) fordevelopingtheir
business, thus not prefer to locate at the CBD as
it may betoo costly for production.
Residential Sector: Less attractive for the
industry and converselybecomemore attractive
for the householderas the landpricegetting
lowerwhich letpeopleable topurchaseland
with less moneyand maximum value.

8. Characteristics
People are less willing to pay for land which far
away from the CBD and conversely willing to
pay more for land near CBD.
Eachform land use such asagricultural, retail,
services,or housinggenerate different Bid
RentCurves.
This theorydoes not concernaboutrelief
variations,planningconstraints,linesof
communication and so on.
Curves for residential starts lower whichmeans
that the houseowner cannotafford the high
rents that manufacturers can.

9. Strength of
the Bid
Rent
Theory
Most of the countries follow the
same pattern.
Ithelps us to understandthe
process involvedin
thegrowthof city.
Simpleand easytounderstand.

10. Weakness
of the Bid
Rent
Theory
In the traditional "low class" areas, we
a found some of the most expensive
property due to urban regenration
and gentrification or culture variation.
Not all countrieshavea highdemand
forcentralizedland. Thuswe
foundthat
thistheorytakesaverybroadpattern.

11. •Industry retailer prefer to rent
the area which are near with a
highway as it have a better
transportation system. The
price of the land held at suburb
area or outer location will be
lower compare with the inner
city.