Urban development and negative differential rent

The growth of building land does not always produce a positive differential rent on the existing building stock. The essay aims to discuss the case where urban expansion has negative effects on the rent of existing building plots and constructions. In other words, the differential rent assumes negative values that increase over time, lowering the value of existing properties. This occurs when the expansion of the city does not correspond to a real need for new housing. Generally, it happens in the presence of urban centres already in an advanced phase of demographic contraction, when the existing building stock would be sufficient to satisfy the real estate demand. This expansion (sometimes achieved through urban plans or building programs, others in the total absence of plans) is a phenomenon that, since the 1960s, has affected (and still affects) many smaller towns in Italy. While in the cities that attract population, urban expansion led to the creation of a positive and growing rent (absolute and differential), in the centres suffering from depopulation the same type of expansion had adverse effects on the existing building stock.


INTRODUCTION
A highly debated topic in urban production, social equity and wealth redistribution is that related to urban rent.This extra profit, created overall by the community, but forfeited by the owners of the soils, has been the engine of most of the urban transformations that have affected the municipalities of Italy from the post-war period onwards.In the big cities as well as in the small towns, the race for urban rent significantly affected urban plans and programs (Cervellati, 1976;Chiodelli and Moroni, 2015), and little effort have been made to be able to return a part of it to the community (Tocci, 2009;Ble i , 2017).However, the effects of this expansion on the values of the existing built heritage (or on building land) have been very different depending on the contexts.In fact, while in cities with population growth, an expansion generally involves an increase in the values of existing buildings and urban land, in villages where the population decreases, the exact opposite occurs.Thus, the expansion of the urban centre is followed by a progressive decrease in the value of the existing buildings, in particular the minor historical ones.This has in many cases led to almost zero real estate values, with the consequent abandonment and exit from the market of most of the existing properties, which are now falling into ruin and represent a serious problem for many Italian municipalities.Urban rent was the cause of this transformation, but, this time, its two components did not add up, but entered into competition.

URBAN RENT
In its specific economic "form", urban rent constitutes the difference between the market price of a building or a potentially building land (or in any case suitable for carrying out, in the urban context, profitable activities, from which both that is, it is possible to extract surplus value) and its production price (agricultural value, more cost of urbanization and construction, more entrepreneurial profit) (Modigliani et al., 2016).The urban rent arises when the building land is available in insufficient quantities to satisfy all the demand, and The growth of building land does not always produce a positive differential rent on the existing building stock.The essay aims to discuss the case where urban expansion has negative effects on the rent of existing building plots and constructions.In other words, the differential rent assumes negative values that increase over time, lowering the value of existing properties.This occurs when the expansion of the city does not correspond to a real need for new housing.Generally, it happens in the presence of urban centres already in an advanced phase of demographic contraction, when the existing building stock would be sufficient to satisfy the real estate demand.This expansion (sometimes achieved through urban plans or building programs, others in the total absence of plans) is a phenomenon that, since the 1960s, has affected (and still affects) many smaller towns in Italy.While in the cities that attract population, urban expansion led to the creation of a positive and growing rent (absolute and differential), in the centres suffering from depopulation the same type of expansion had adverse effects on the existing building stock.
Abstract then a greater value is generated, caused by the competition between the various economic actors which leads to an increase in prices.Considering that the rarity of building land is "artificial", or rather determined by a regulatory act, urban rent is considered an unavoidable effect of planning.The theory recognizes two forms of rent: absolute and differential (Malthus, 1815;Ricardo, 1815).Absolute rent is generated when a regulatory or planning act recognizes a building capacity to a plot of land.This entails a shift from the agricultural land market to that of building land, with a consequent increase in price, which, after expenses, produces a plus value which compensates the land owners.This plus value is guaranteed by the fact that the asset is rare and available in limited quantities and that the owner can decide to use it as he sees fit, putting or leaving it out of the market.This rent represents an extra profit, one-off, which occurs when the transformation (urbanization) of the asset takes place.Differential rent, on the other hand, is generated by the difference between real estate and tends to reward those in positions considered central, for whose qualities there is a greater willingness to pay.It is from the comparison between the most advantageous and central and the most peripheral land that this plus value arises.So every time new lands enter the market, generally more marginal than those already present, the value of all the others grows.This location advantage is all the more marked the larger the size of a city.Conversely, in small towns the advantage of a central location decreases, and the difference with the peripheral locations is not so marked (the distances are short).All the plus values generated by urban transformations that bring an area to be more appreciated, also in relation to different uses, belong to this type of rent (Qina et al., 2016).The construction of parks, sports centres or services of various kinds are examples of these transformations, often carried out through public initiatives, but which can also promoted by private.Differential rent therefore evolves over time, depending on the urban sprawl and the distribution of functions, activities and services within the city.Alonso (1964), starting from the hypothesis that the most attractive part of the city is also the centre of gravity, and that there is an increasingly negative gradient in moving away from the centre, has given way to the development of models to schematize the trend of the rent (and property values) within the same city.In a cycle of demographic expansion, the development of the rent can be schematized as shown in figure 1.As the city grows, new building plots are made available (however insufficiently to satisfy the whole demand) and there is a double creation of urban rent: the absolute one for the new building plots, and the differential one, which translates into a generalized one increase in the value of existing properties.
Of course this model is simplistic, cities in general are multi polar systems and the location choices are very varied.
In fact, we are witnessing a progressive affirmation of processes of "diversification of society" (whether they are social, economic or institutional).Consequently, the needs of urban use are also more heterogeneous, influencing the demand for interaction and participation in the activities (Modigliani et al., 2016).Cities will therefore have peaks in value and variations in relation to clearly non-concentric geographies, but given both by the historical process of urbanization, and by the distribution of services and activities within them.The modalities of formation and variation of the urban rent are a complex and debated topic in literature (Park, J. 2014).Each city represents a market in itself and, within the same city, there are multiple markets based on different locations.The real estate values therefore correspond to the preference for certain locations.This location preference implies continuous movements of people and changes in residence, in search of optimal accommodation (Tiebout, 1956).

THE POPULATION DECLINE
The previous graph explains what happens when a city with a growing population expands.However, each expansion of the city does not always correspond to a positive effect on the rent of existing properties, in fact in some cases we have negative effects.Differential urban rent must be considered in its dynamism, so not only journal valori e valutazioni No. 27 -2020 112 Figure 1 -Trend of the values of the areas in a theoretical urban system, elaborations on Mayer's scheme (source: Molinari, 1993).
should spatial expansion be assessed, but also the influence of the time factor, which lead to changes in economic conditions, regulations and cultural innovation processes, all things that condition urban demand.The location advantages therefore are not fixed, but change, sometimes also leading to inversions in the hierarchy of preferences.Many rearrangement processes are legible through the use of demographic indicators, which (in a complex cause and effect process) are strictly connected to urban changes.Economic and job opportunities are generally an attractor, the effect of which is an increase in immigration, but, at the same time, population growth influences and contributes to increasing the city's economies.Conversely, emigration results in a contraction in the offer of services and therefore leads to fewer job opportunities.According to the United Nations (UN, 2017), Europe is the only continent that is entering a phase of demographic decline that will continue until at least 2100, despite the positive international migratory balances, which however do not balance the natural balance.Between 2020 and 2100, the countries of the East (-72 million) and the Mediterranean area (-37 million) will lose population.The West has forecasts with the population almost unchanged (-0.6 million), while in the Northern Europe the population will growth of 20 million of inhabitants in the same period.For Italy, included in the Mediterranean area by the UN report, a decrease of almost 12 million inhabitants is expected by 2100.However, the demographic decline, also due to internal migration, is not uniform.
Even within the same country there are areas of demographic growth (mainly due to immigration) and areas of strong depopulation (both for emigration and for the strongly negative natural balance).
To evaluate these changes, we always refer to the sixties as a moment of epochal changes, and it is possible to identify a whole series of elements that, over time, have led to the realization of negative differential rent in a large part of the Italian municipalities.(Manganelli and Murgante, 2017).Demographic studies also help in this sense, registering in this period the peak of fertility rates and maximum number of inhabitants for many small towns, followed, in the subsequent years, by strong population losses.From this decade there has been a high concentration of population in the main urban centres, with a consequent strong loss of population in rural areas, in many cases still ongoing.Therefore in Europe not only has a general structural contraction of the population started, but it is combined with a continuous migration towards the main urban centres, which continued to grow throughout the first part of the twentieth century.These flows has been characterized both by local movements (within the same region, from small towns to major centres) but also by large national and international migratory movements, where the main attractors has been the capitals and large industrial cities.At the end of the twentieth century, the demographic decline has already started to affect large European cities.This has opened a research on "Shrinking Cities" (city in contraction), with contributions from many authors (Oswalt, 2005;Fritsche et al., 2007;Kabis and Haase, 2011;Rink et al., 2012).Turok and Mykhnenko (2007) in their study of 310 European cities with more than 200,000 inhabitants in 2000, showed how the current trajectories of cities are quite complex.In the early 1960s, almost all of them grew, while in the late 1990s there was a majority of cities in demographic decline.In any case, the population growth rate of cities in 2007 was lower than the population growth rate in the respective countries.Therefore, there has been a generalized slowdown, or a turnaround, with respect to urban concentration.The decline has been significantly more pronounced in Western European cities, rather than in Eastern Europe, where many cities are still expanding.In any case, for cities already in crisis, expectations are mostly of stagnation and further decline rather than revitalization.The demographic contraction becomes problematic especially in the urban space, where the built environment has a very large inertia and the useful life and resilience of the buildings go beyond that of their inhabitants (Storper and Manville, 2006), requiring a necessary rethinking of the urban landscape (Eischeid and Lima, 2017), also in relation to rent regeneration (Rusci, 2017).We add that in most of the centres in demographic decline, the construction of new buildings has slowed down but has never stopped (European Environmental journal valori e valutazioni No. 27 -2020  , 2009;Kroll and Haase, 2010;Reckien and Martinez-Fernandez, 2011), producing an uncontrolled growth of suburbs and peripheries and a constant abandonment of large parts of the existing buildings.This applies in general to both large cities and smaller rural village.It is a phenomenon with an uneven distribution, with pockets of extreme abandonment and towns in continuous expansion, from demographic and housing point of view.In the vast majority of cases, there has not been the ability to link demographic forecasts and changes in the composition of the population with building production, which has always been more guided by speculative logic, aimed at forfeiting the rent, that over time is become a real financial product (Tocci, 2009;Bogataj et al., 2016).

THE NEGATIVE DIFFERENTIAL RENT
A first distinctive feature of cities and towns that recorded a negative differential rent has been the simultaneous occurrence of an important demographic contraction combined with an incessant urban expansion.
Considering the dynamics of the annuity as a combination of trade-off and filtering-down forces (Manganelli and Murgante, 2017), these factors contribute to a general lowering of prices, since the supply of building land is increased when the demand is declining.Nevertheless, the demand for building land has remained active, leading to the implementation of plans or programs characterized by a continuous urban expansion.This question has remained active precisely because the desired typology of residence have gradually changed since the 1960s.The idea of an isolated residence has emerged almost everywhere, supplanting soon the historical building typologies of the various places.At the same time is emerged also a demand for different living spaces, characterized by an higher number of rooms and by a specialization of the various rooms of the house.The sixties also represented the moment in which the concept of the historic centre was affirmed, and with this, a regulation of greater protection aimed at its conservation, applied within specific urban perimeters.
The other epochal element of rupture with past location preferences has been the progressive and inexorable affirmation of the automobile as a means of mass locomotion.Its use is often incompatible or in any case difficult inside the narrow road network of the historic centres, where it is difficult to drive and with limited spaces available for parking.All this (including the ease of earning provided by urban rent) has acted in favor of urban expansion.
In the case of small villages, this time has been generated an absolute rent, but also a positive differential rent on these new expansions.The cause is that they were more adequate to the localization demand of the moment, and, considering that we are talking about small places, were not particularly penalized by their peripheral location.On the contrary, the building plots and existing buildings contained in the historic centres have become less and less attractive, given the changed demand for building potential and building typology.
If we go back to Alonso's previous model of urban expansion we can think of identifying with the center of the model, the historical centre of these villages.Due to the changes in the demand described above, in the space of a few years it lost many of the characteristics of centralitye.
The like a different market than the existing urban centre, reaching ever greater values, while the historical centre gradually lost its central role.If the positive differential rent is generated by the scarcity of the urban land property and by the differences existing between the different urbanized soils, the negative rent is generated by a relative "abundance" of urban land which, thanks to a series of cultural changes and the progressive depopulation, it almost led to zero the demand for land and building in the consolidated centre.In many cases, there has been practically a total loss of the starting real estate value (Fig. 3).
In fact, it is as if the suburbs that arose in the sixties have become the current urban centre, while the historic one have become gradually "peripheral" until almost completely losing the location advantages that had distinguished it in the past.Furthermore, the owners manage the market presence of rare good as buildings and plots (and in many cases the properties in the historical centres are undivided, with many owners).When the market value is extremely low, and therefore increasingly far from the expectations of the potential seller, it happens that the properties are not made available for sale, even where some potential buyer exists, further fueling the vicious circle of peripheralization of the centre and expansion of the city.
Below, reference will be made to the case of Sardinia, but, as just discussed, most of the considerations can be translated into many other Italian and non-Italian realities.
In Sardinia there are many smaller historical centres whose real estate value is very low or almost zero, with a high number of properties already reduced to ruins.For the reasons explained above, an even higher number of buildings are becoming ruins, due to the lack of an active market, both for the low number of potential buyers and for the difficulty in finding sellers who accept very low market prices.

CASE STUDY: SARDINIA
A weak urban framework, with a low population density (68.39 inhab./Sqkm), characterizes Sardinia (Cannaos, 2013).The island is divided into 377 municipalities of which 314 (ISTAT, 2015) have fewer than 5,000 residents and only two exceed 100,000.Since 2014 there has been a decrease in the population, which in the last three years has been around 5,000 residents per year.This trend will continue for a long time.The median forecast of the ISTAT population to 2066 (ISTAT, 2018) predicts a loss of almost 500,000 inhabitants compared to the current approximately 1,650,000.It is a very relevant number, whose magnitude is not in question.Indeed it must be said that on 1 January 2018 we are already below even the worst of ISTAT expectations, due to the strong emigration of Sardinians (especially young people) in the last two years.
All this continues to produce an overabundance of buildings, the management of which is, and will become increasingly, a crucial problem.
Observing the demographic changes from the sixties to today and comparing them with building production, we can verify what has been said above.
From 1961 to 2011 in Sardinia there were 252 municipalities with a negative demographic balance and 125 municipalities with a positive demographic balance (Fig. 4).
It is above all the municipalities of the inner land that, despite an overall population growth of the island, have lost population in favor of the main urban centres and most of the coastal municipalities (Cannaos and Onni, 2017).Specifically, 38 municipalities have lost more than 50% of residents, 145 between 20 and 50%, and 69 municipalities less than 20%.
To try to reason according to the above scheme, it was decided to analyze the urban development of the municipalities that have suffered a population decrease of 20% or more, excluding coastal ones, whose building dynamics are also influenced by tourism.
journal valori e valutazioni No. 27 -2020 In this way, 171 municipalities were identified which lost a total of 120,274 residents, that is 37.8% of the population.This area of severe demographic crisis, as shown in figure 5, especially affects the central axis of the island.They are municipalities where the main economic activities were agriculture, pastoralism and livestock farming, whose ongoing crisis (there are still few initiatives on other sectors, see for example Cannaos and Onni, 2019)  In order to support this data, considering some evident inconsistencies found in the 2011 census housing data (some towns between 2001 and 2011 recorded a significant number of homes less), it is also worth analysing the growth of urbanised soil in these villages.
To make this assessment we chose to use the shape files made available by the region of Sardinia and developed in 2006 during the drafting of the Regional Landscape Plan (RLP).In particular, three levels of information were used: that of the matrix centres (basically the situation mapped by the IGM in the early 1895, later revised, in some cases, during co-planning between municipalities and the Region); that of the expansions up to the 1950s (based on journal valori e valutazioni No. 27 -2020 116 Urban expansion is therefore identified by recent expansions, the increase of urbanized surface area has been evaluated with respect to the areas identified as centres of first formation and expansions until the fifties. The figure that emerges (Fig. 6) is in line with the previous one.
Between 1954 and 2006 the urban growth was 3,477 hectares, equal to an increase of 53.8% of the urbanized area.
Only 7 of the 171 municipalities analyzed grew less than 20%, 39 between 20 and 40%, 71 between 40 and 60%, 54 between 60 and 84%.Moving from regional to urban scale visualization (Fig. 7) the phenomenon is perhaps even more evident.
There has been a shift towards the suburbs, where a large part of the population now resides, and the urban villages have become mostly places where the main services are located (municipal house, banks, offices, shops, churches) although surrounded by a large number of empty houses.

THE MEASURE OF THE NEGATIVE DIFFERENTIAL RENT
The main effect of this expansive policy of villages in severe demographic crisis has been the reduction of the values of existing properties.
There is no clear and straightforward system that can easily demonstrate this fact.Indirect evidence that existing properties have left the market is the expansion of the towns while their population was shrinking.It is clear that the existing houses have been progressively abandoned, otherwise the expansion without buyers would have stopped almost immediately.
An indicator is the number of empty houses in the historical centres, which in some cases can be determined in an approximate way, through the data of the census areas of ISTAT (2011, housing census) which, although not coinciding with the matrix centre, give us an idea of what happens in these areas.
Out of a sample of 17 municipalities (10% of those identified as crisis areas) it was found that the void ratio is increasing in historic city centres.Only in one of the cases analyzed (Ollolai) the index is lower than the average of the municipalities in the crisis area (30.3%), but this is also due to the census sections of the municipality, which include both historical buildings and recent expansions.
In all other cases the values recorded in the sections included in the perimeter of the matrix centre are much higher, reaching even 71% of empty dwellings.From figure 9 it is clear that the number of transactions in the municipalities of the crisis area has been minimal, between 0 and 1%.The IMI value of non-capital municipalities for 2017 is 0.97%.The regional IMI value is 1.22% (OMI,2018b), with the national average at 1.59%.These are some of the lowest values in Italy (OMI, 2018a).In 2017, 19 of the municipalities in the crisis area had no real estate transactions, and half of them had less than two normalised transactions (NTN)1 .The average among the 171 municipalities for 2017 is 3.8 NTN (IMO, 2018a), also very low.
In addition, it is to be expected that a large part of the transactions will concern real estate located outside the historical centres.

URBAN REGENERATION
The issue of urban regeneration of these historic centers is crucial and complex (Saaty and De Paola, 2017), and must take place with a view to environmental, social and economic sustainability to be assessed on a case-by-case basis (Pontrandolfi and Manganelli, 2018;Della Spina and Calabrò, 2018).
In order to address the problem of low real estate values, several municipal administrations have put in place regeneration policies aimed at tourist or residential reuse.One of the best known refers to the "one-euro houses".Some municipalities sell properties, previously acquired, for a symbolic price (one euro) in exchange for a restoration and/or renovation work.
In Ollolai (NU) the initiative has found some positive implications, also thanks to a Dutch TV that has filmed a reality show on this topic, producing a trait d'union between the village and the Netherlands.However, the number of NTNs in 2017 was 3.4, so there was no awakening of the real estate market.This initiative is not original, since it has already been used in Italy and abroad, but without achieving the expected results.In Italy sometimes it was bureaucratic difficulties that blocked the initiative.For example, in Lecce dei Marsi, in the Abruzzo region of Italy, the Inland Revenue requested to calculate the taxes of the sale on the cadastral value of the properties, making the sale onerous.Another obstacle is given by the owners of the properties, often difficult to identify and in any case unwilling to give up their property for free.Even the public acquisition is a complex procedure.Last but not least, giving away a good that has a value (at minimum the agricultural land price) for free, risks lowering real estate values even further, because it generates the idea that they may be completely null and void.
The overabundance of dwellings represents an extremely complex problem, which had to be addressed at the beginning (i.e.avoiding the expansion of shrinking urban centres).Unfortunately, even today, there are still places (in Italy and abroad) that half a century later are still going down the same road.

CONCLUSIONS
In the discussion, it was illustrated how urban rent has strongly influenced the expansion of smaller cities and towns in Italy.Owners, politicians and builders have joined forces to create new volumes.But while in cities with a growing population this has added value to existing buildings, in smaller towns, characterized by depopulation, the absolute rent has cannibalized the differential rent.The construction of new value was at the expense of journal valori e valutazioni No. 27 -2020 118 existing value.Expanding a city in demographic contraction means taking wealth away from the owners of the existing building.In many cases properties in the historic centre represent only an expense item, unable to generate income, without a market and almost empty of any value.
If already the soil consumption (so far deliberately not mentioned in this article) is a good reason to make choices that are not very expansive in the plan (Gibelli and Salzano, 2006), the negative differential rent is another reason, in order not to further impoverish centers already in economic and demographic difficulties.The (current and future) ruderization of these buildings is a problem that many municipalities face on a daily basis and would require long-term (national or regional) rules and policies.
The possibility of rent appropriation has helped to promote unwise choices, which today, literally, leave their ruins on the shoulders of future generations.

Figure 7 -
Figure 7 -Expansion and depopulation.In light gray the centres to 1954, in dark gray the expansions to 2006.

Population (millions) Region 2017 2030 2050 2100
In fifty years, the number of empty houses has become six times as high as it was in the 1960s and, given what has just been said about older residents, it is clear that it is set to increase significantly in the coming years.
Despite the demographic collapse, the number of dwellings grew by one and a half time.Part of this abnormal growth in housing has been amortized by the decrease in the average number of members per household (currently 2.3 whereas in 1961 it was 4.3), so that the same number of residents now occupies more houses.The number of single-component households from 1971 to 2011 in Sardinia increased from 11.59% to 31.81% of total households.In these settlements there are many households consisting of a single person, usually elderly, (often widowed women), so a good number of homes are inhabited, although oversized compared to the real space needs of the individual resident.In Sardinia the average age (ISTAT, 2018) is 45.93 years (the national average is 44.7).In crisis areas, it rises to 48.36 years, with only 12 municipalities below the regional average.This means an important component of the elderly population.The crisis area's old age index is 263.5% against a Sardinian average of 202.7%.