THEORY OF RENT

In the theory and practice of estate management, the term “rent” features prominently. It focuses on the theory of rent and aims at highlighting why rent exists in the first place, what factors influence or determine it and why it is always rising? As earlier discussed, rent is a periodic payment for the use or hire of any capital asset. It is a contractual payment fixed in terms of money and normally paid on annual basis.

The pertinent question is why does rent exist? In attempt to answer this question, it has thrown up many theories on theories on rents.

The theory of rent can be looked at in the light of one model.

THE URBAN MODEL

The theory of rent in urban lands has not been given much attention by economists. According to Richfield, (1974) this positions is due mainly to two reasons; via

i)                    The decline in the importance of land in the present economic set – up land

ii)                  The argument by modern economists is that rent is not peculiar to land; it could well be earned by any other factors of production.

Despite this, however land economy experts have come – up with theories of rent on urban land. According to Hurd, (1903) he observed that as a city grows, more remote and inferior sites come into use. The difference in desirability between the superior and inferior lands produces economic rent for the superior site. If a much more inferior land is put into use such as commercial or residential, the inferior land starts to receive rent while the rent get on the superior land increase. The trend continues in that order.

 

According to Robert Murray Haig (1926), in his book Regional Survey of New York and its Environment, Major Economic factors in Metropolis growth and Arrangement was one of the first economists to study the relationship between land rents and transport costs. He suggested that “rent appears as the change which the owner of a relatively accessible site can impose because of the saucing in transport cost which the use of his site makes possible”. Though, this work did not depart so much from Hurd (1999) proposition on urban rent.

 

According to Alonso (1964), he comments that an innovation in the theory its strong statement of the complementarily of rent and transport cost on urban model.

Wingl (1961) was in agreement with this theory when he wrote” rents and transport costs are viewed as complementary, the sum being equal to a constant transport costs to the most distant residential location being occupied.  Writing specifically on residential land it was observed that “in choosing a residence purely as consumption proposition, one buys accessibility. Haig (2012) considers how much be wants the contracts furnished by the central location, weighing the cost of friction involved, the various possible combinations of site rents, time value, and transport cost, he compares this want with his other desires and his resources and he fits into his scale of consumption and buys.

 

This has been affirmed by Ratchiffe (1997) on residential land value, some land is not a factor of production, but is a consumption goods, such as owner occupied residential plots and recreational land. Here the value if almost all amenity value. But they were quick to add that “accessibility is a substitute for transportation, both has to be paid for, the former is the rent or value of land, the latter in time, in convenience and the cost of conveyance”.

However this over emphasis on accessibility has been criticized by Alonso. According to him “if the only criteria for residential location is accessibility to the centre and the minimization of the cost of friction while consideration of the size is excluded all residence would be clustered around the centre of the city at a very high density population”. It is observed at this juncture that most of the theories on urban rent have hinged on location.

According to Stasis (1974) he observed that “locational theory is developed by economists, it is largely on extension of price theory, the study of allocation of scare resources among competing ends”. It is not worthy to state, however, that the significance of location in agricultural land is not the same in urban land. Location of a site is important in urban land because of convenience and accessibility to people who want land for diverse uses.