Impact of Transport Costs on Housing Decisions

This study will emphasise on the effect of transportation cost towards the decision of housing location. The case study will be held in Bandar Saujana Putra, Selangor. This study will be using the quantitative methods to further study the effect of transportation cost towards the decision of housing location.

• Background

In the search for lower cost housing, working families often locate far from their place of work and this will resulting in the increasing of their transportation costs and commute times. However, for many such families, the transportation costs exceed their housing costs. According to Bernstein (2001), affordability has never been just about housing cost, it is actually the interaction between housing and transportation cost that provide more meaningful measure of affordability. Hence, choosing a location-efficient neighbourhood near transit, services and jobs, families can reduce monthly household expenses.

This study will emphasise on the model of land use and prices formulated by Von Thunen in 1826, a German economist. The theory concentrates on difference in relative transport costs in different types of agricultural production. According to J. Harvey (1997), he made assumptions that a boundless flat and featureless plain over which natural resources and climate are distributed uniformly and there is a central market for the area.

Furthermore, he also assumed that the farmer used uniform horse and cart transport facilities to this central market, and different foods can be grown, but since these differ in bulk, the cost of transporting them to the market also differs. For each type of product, transport cost varies directly and proportionately with distance from the central market. However, the receipts from cultivation of one hectare of land are the same for all types of product.

Given by these assumptions, it pictures the rent-paying capacity as a function of transport cost and the distance from the market. As distance from the market increases the total costs are raised by the increased cost of transport of the cultivation product. However, this study will relates this theory with the decision of housing location of the case study in Bandar Saujana. It will examine whether the theory match the pattern of the housing location in regards with the transport cost.

Bandar Saujana Putra is a new self-contained township located in Sepang Selangor. The township launched the first phase of the development in 2004, has an easy access to the town centre using ELITE Highway. Its easy access to the town made Bandar Saujana Putra an ideal for the case study as the resident able to travel to the respective location of their needs.

• Statement of Problems:

The township of Bandar Saujana Putra is located approximately 20km from the centre of Kuala Lumpur and the residents enjoy an easy access via ELITE Highway. However, how the transportation cost is plays a role in determining the decision to reside in Bandar Saujana Putra?

Furthermore, does the Von Thunen theory explain the pattern of location theory in the case of Bandar Saujana Putra?

• Objectives of Study:

The main objective of the study is to examine the effects of transportation cost towards the decision of housing location.

The second objective of the study is to examine whether Von Thunen theory match the pattern of location theory in Bandar Saujana Putra.

• Scope of Study:

The study is confined to the areas of Bandar Saujana Putra, Selangor since it is located approximately 20 km away from city centre and easily accessible. The respondent of the questionnaire are limited to the residents of Bandar Saujana Putra and analysis as well as findings from the rental and property price will be used to accomplish the objectives mentioned above.

The difficulty and limitation for the study arise when distributing the sample questionnaire and to get the feedback from the respondents. There will be situation where the respondents that have been approached will not or hesitate to give cooperation to the sample questionnaire.

• Research Methodology:

The study would be done in an analytic manner. The information that is needed to examine the issue will be obtained from primary and secondary data.

• Primary Data:

Primary data refers to the first-hand data, which required data collection. For this study, it will mainly involve in the distribution of questionnaire to the residents of Bandar Saujana Putra. The analysis will also be done according to the study areas in order to examine the transport cost of the residents. The question will be in objective manner administered to arrive to the objectives of the study.

• Secondary Data:

The second method is secondary data which will mostly comprise of data collection through references of such as relevant books, journal, conference paper, newspaper and magazine articles and also online references. The data will also obtain from the economic text book which further explained the theory related to the study.

• Significant of Study:

It is hoped that the anticipated outcome of this study can benefit the government especially the Town Planners in determining the structure of local city plan. While planning for housing development and also commercial hub, the developer and town planners have to consider the factors of distance and transportation as these two related closely to the affordability factor of a household.

Secondly, this study will also benefit the house buyer in determining the location of the house as the distance and transportation cost is concern. The study will enlighten as how the location factors of property affects the daily budget of a household. The study also points to the importance of infill development that expands the supply of affordable housing in inner city and older suburban neighbourhoods that have good access to traditional job centres; the development of more affordable housing near transportation hubs and suburban employment centres.

Lastly, the study intends to benefit the students as it will open up more discussion regarding the issue. Further research can be done to improve the findings of this study and hopefully it will beneficial towards the knowledge of the students.

• Organisation of Study:

This study will consist of five chapters where the first chapter provides a brief concept and overview of Von Thunen theory that will be discussed further in the Literature Review. The first chapter consist of the introduction of the study and also statement problem that initiates the study. The first chapter also explained on the limitation faced on doing the study and the significance of this study.

Meanwhile, the second chapter will discuss on literature review related to the study. It will mainly focus on the concept of the dynamic of Von Thunen theory in relation of the property market. The next part of the chapter will look further on the theory of urban economic and the formulation of the theory towards the locational decision. It will further strengthen the understanding of the theory based on the literature reviewed.

Chapter three will discuss further on the methodology used in obtaining the information for the study. The quantitative methods of distributing questionnaire will be discussed further as well as the qualitative research methods used in the study. The qualitative research of collecting, analyzing, and interpreting data is by observing the current market trend. This chapter will further emphasise on the case study chosen which is Bandar Saujana Putra, Selangor.

The fourth chapter of the study will shows the analysis of the data collected previously. Information and data that is obtained from the survey of the market rental will be further detailed in this chapter using the appropriate graphs and diagrams. The analysis of the findings is further discussed in relation to the patterns of economic rent in the market.

The last chapter will conclude the analysis of the findings and draws the recommendation of the further study to compliment this research. It will also determine the confirmation of the objectives of this study as well as the holistic achievement of the study.

Chapter 2: Literature Review

• Introduction:

This chapter will explain further on the previous literature and writing in regards of the urban land use in general and Von Thunen theory of locational decision. Other than that, this chapter will also discuss on the limitation of the theory as well as the formulation of the theory.

• Background:

Urban land use comprises two elements; the nature of land use which relates to which activities are taking place, and the level of spatial accumulation which indicates their intensity and concentration. Central areas compared to peripheral area have a high level of spatial accumulation and corresponding land uses such as retail while peripheral areas, on the other hand have lower levels of accumulation. In addition most economic as suggested by Gordon (2005), social or cultural activities imply a multitude of functions, such as production, consumption and distribution.

These functions take place only at specific locations and are part of an activity system. Therefore activities have a spatial imprint whereby some are routine activities as they occur regularly and are thus predictable, such as commuting and shopping. Others are institutional activities that tend to be irregular, and are shaped by lifestyle for example sports and leisure, by special needs for example healthcare. Still others are production activities that are related to manufacturing and distribution, whose linkages may be local, regional or global. In short, the behavioural patterns of individuals, institutions and firms have an imprint on land use and the representation of this imprint requires a typology of land use, which can be formal or functional:

• Formal land use:

The representations are concerned with qualitative attributes of space such as its form, pattern and aspect and are descriptive in nature.

• Functional land use:

The representations are concerned with the economic nature of activities such as production, consumption, residence, and transport, and are mainly a socioeconomic description of space.

• Residential accommodation:

The stock of residential accommodation varies from multi-storey flat near the city centre, through back-to-back terrace houses and then semi-detached, to detached houses often standing in spacious ground. This stock of residential accommodation reflects decisions taken at some time in the past because of the building costs rule out the choice of new construction for a substantial part of the population. If the residence is to compete land away from other uses then sites would have to be developed to higher densities in or near the position of greatest accessibility than elsewhere, because sites in that area provide optimum location for higher order uses such as offices and retailing.

According to Smith (1997), there is a relationship between a person’s income, his place of residence and his place of work, although the correlation is not fixed, for individuals differ in the proportion of their incomes they choose to spend on accommodation. An individual, according to Cunningham (1999), seeking to maximise utility, must weigh his desire for access to his place of work against various possible combinations of commuting costs and accommodation prices and his other desires for urban contacts and amenities.

Incomes will determine how far a household’s residence preference can be indulged. With differing preference consumers in the same group of income may demand different type of accommodation. On the other hand, those desiring contacts furnished by near central locations have the advantage of lower transport cost but frequently have to sacrifice certain site amenities. Where persons of unlike incomes lives at distances where they incur the same commuting costs then the person with the highest income will occupy the best accommodation, and so on.

• Urban Land Use:

Commercial land use according to Faraday (1997) and supported by Lean (2001) involves relationships with its supplier and customers as it support the claim that land use in both formal and functional representations implies a set of relationships with other land uses. A level of accessibility to both systems of circulation must be present because relationships with suppliers will dominantly be related with movements of freight; relationships with customers would include movements of people. Since each type of land use has its own specific mobility requirements, transportation is one of the factors of activity location and is therefore associated intimately with land use. Within the urban system each activity occupies a suitable, but not necessarily optimal location, from which it derives rent. Transportation and land use interactions mostly consider the retroactive relationships between activities, which are land use related, and accessibility, which is transportation related. These relationships often have been described as a “chicken-and-egg” problem since it is difficult to identify the triggering cause of change; do transportation changes precede land use changes or vice-versa?

Urban transportation aims at supporting transport demands generated by the diversity of urban activities in a diversity of urban contexts. A key for understanding urban entities thus lies in the analysis of patterns and processes of the transport / land use system. This system is highly complex and involves several relationships between the transport system, spatial interactions and land use:

• Transport system:

It will consider the set of transport infrastructures and modes that are supporting urban movements of passengers and freight. It generally expresses the level of accessibility.

• Spatial interactions:

It will consider the nature, extent, origins and destinations of the urban movements of passengers and freight. They take into consideration the attributes of the transport system as well as the land use factors that are generating and attracting movements.

• Land use:

It will consider the level of spatial accumulation of activities and their associated levels of mobility requirements. Land use is commonly linked with demographic and economic attributes.

• Accessibility:

Accessibility evaluates the net economic costs of moving persons and goods between one place and another place. It is, therefore, not only concerned with the distance to be travelled between two places but, more important, with the time taken to travel that distance, i.e., with all the factor costs in any journey (Lean , 2001). However, accessibility does not affect solely the real costs incurred by movement but also the real benefits derived.

The residential demand for urban land also depends upon accessibility but the capital sum a residential user pays to obtain a site represents a money evaluation of the satisfaction to be derived from that site. According to Goddall (2001) residential demand depends upon utility or satisfaction and the residential user seeks that the site which allows him to maximise his utility. Thus, for the residential user travelling, whether to work, to shops, or for pleasure, represent a disutility and each person wishes to minimise these disutilities such as the time and money costs of travelling.

Disutilities would be minimised if a residential user located himself on a site with a high degree of accessibility, so residential use would compete with business uses for accessible site. However, for a residential there are certain amenities considerations involved in the choice of site which confer satisfaction/utility upon the user. The amenity value of a site depends upon factors not readily assessable in financial terms such as space, quiet, fresh air, etc. According to Wardour (1997) the choice of a residential site is, in many cases, a compromise because the desire to minimise travelling disutilities demands a relatively accessible, therefore central site, whereas the quest for amenity leads towards less accessible sites some way from the city centre. Greater amenity can usually be achieved by accepting additional travelling disutility.

• Urban Land Use Model: Von Thunen Ring Model:

The relationships between transportation and land use are rich in theoretical representations that have contributed much too geographical sciences. Several descriptive and analytical models of urban land use have been developed over time, with increased levels of complexity where all of them involve some consideration of transport in the explanations of urban land use structures according to Carter (1995). However, this study will emphasise on the oldest land use theory by Johann Heinrich Von Thunen. According to Rodrigue (2000) modern location economics began with Von Thunen (1826). Being the first to develop a basic analytical model of the relationships between markets, production, and distance he too looked upon the agricultural landscape as the purpose in this study. The relative costs of transporting different agricultural commodities to the central market determined the agricultural land use around a city. The most productive activities will thus compete for the closest land to the market and less productive activities will be located further away. The model has a set of basic assumptions which reflects agricultural conditions around a city in the early 19th century:

• Isolation:

There is one isolated market in an isolated state having no interactions (trade) with the outside.

• Ubiquitous land characteristics:

The land surrounding the market is entirely flat and its fertility uniform.

• Transportation:

It is assumed there are no transport infrastructures such as roads or rivers and that farmers are transporting their production to the market using horses and carts. Transportation costs are dependent of the type of commodity being transported to the market as well as the distance involved.

Comparison of the relationships between production cost, the market price and the transport cost of an agricultural commodity is explained thoroughly as follows:

R = Y(p-c) – Yfm

• R = Rent per unit of land.
• Y = Yield per unit of land.
• p = market price per unit of yield.
• c = Average production costs per unit of yield.
• m = Distance from market (in kilometers or miles).
• f = Freight rate per unit of yield and unit of distance.

               Carter (1995) further explained that all agricultural land uses are maximizing their productivity (rent) whereby in this case it is dependent upon their location from the market (Central City). Discourse community of farmer play significant role as they are to maximize his profit which is simply the market price minus the transport and production costs. The most productive activities such as gardening or milk production or activities which cost higher in transportation (firewood) are located near to the market. The above figure provides an overview of Von Thunen’s agricultural land use model with the basic assumptions being applied such as isolation, ubiquity, and transportation. It can be divided into two parts:

• The pure isolated state over an isotropic plain (left). In this case, the model takes a shape of perfect concentric circles.

• The potential impacts of modified transport costs (a navigable river) and the presence of a competing center (right).

The relationships between agricultural land use and market distance are very difficult to establish in the contemporary context.

Von Thunen primary objective was to determine the relationship between the intensities and type of agricultural production and the available markets. The physical and cultural complexities however, led him to disregard the variations in a large number of environmental and social conditions. Instead, he made seven basic assumptions, which formed the core of the theory. The ideal site consisted of completely rational (optimising) economic behaviour, an isolated state, a single central city, settlement in village far away from the city centre, and a racially homogeneous population, uniform topography, uniform climate and soil fertility, and a relatively uniform and primitive transportation cost according to Griffin (1968) and later supported by Rodrigue (2001).

Sinclair (1966) however noted that Von Thunen primary concern was to discover and examine the laws which governed the pattern of agricultural land use existing in his time and within his experience. His dominant recognition was the land use pattern depended upon competition between various types of agriculture for the use of particular piece of land. The controlling factor in this competition was Economic Rent as defined here the return of investment in the land. Later it is sopported briefly by Rodrigue (2001) that form of land providing the greatest Economic Rent would make the highest bid for the land and displaced all others.

The facts that transport cost increased with distance and they imparted a spatial variation to Economic Rent become an eye opener to Von Thunen whom later comes to realise that transportation costs were a primary factors determining Economic Rent. Hence, Economic Rent from any one land use can be expressed as a function of a distance from the market.

• Limitation of the Theory:

In constructing the model complicating factors were assumed away, providing a laboratory in which the interplay between a small number of essential causal influences and their relations with certain effect could be studied. In particular this model provided a mechanism in which changing technical and economic inputs could be linked with evolving geographical patterns of production according to Samuelson (1983) and Linehan (2003).

The attraction was thus, that the theory simplified the world by concentrating on the effects of one primary variable, transportation costs, on the location of agricultural production. Von Thunen himself accomplished this by creating the idea of the economic margin. In his view, land use areas were bounded by margins where one use became more cost-effective than another. Given von Thunen’s thesis, Peet, (1987) could attempt to explain how these factors may have changed historically and explain changes in the location of production. The uses of Von Thunen model, or derivatives of it, continue to this day among quantitative geographers for example, Wang and Guldmann (1997); Hill and Smith (1994); Linehan (2003).

Even in 1966, however, the limitations of the model were accepted. Gaston (1997) followed by Linehan (2003) for instance admits “Von Thunen’s analysis is basically descriptive rather than normative” and does not explain changes over time or the possible effects of economies of scale. Despite this, Smith (2000) promotes the model because it made marginal economics geographical. In the years since these limitations in particular the fact that Von Thunen ignored changes over time have often been mentioned, but the model survives in importance in the minds of geographers and is a main subject of beginning economic geography courses. The most likely reason for this is that Von Thunen rings actually appear to exist in many cases. For instance, cities are often surrounded by a dairy ring. Von Thunen rings are one of the few very easily understandable models in geography that truly appear to explain a pattern in the world, even if the model is primarily descriptive and does not give much idea about how exactly this pattern came to be or what might happen to it in the future. Harvey made this argument in Social Justice and the City (1997), arguing that social scientists are attracted to models such as the Isolated State because they appear to be empirically relevant.

Barnes (1998), following Haraway (1997). Latour (1987) and Linehan (2003), comments on the manner in which von Thunen’s model, in particular the concentric zone diagram showing agricultural land use rings of decreasing intensity with distance from the city, has been “fetishized” within economic geography. Barnes (1998) argues, based on the work of Barnbrock (1997) and Harvey (1997) that Von Thunen’s concept of the frontier wage, the “just reward” for work done that, if paid, would ensure worker harmony, leads to a more complete understanding of Von Thunen’s work. This sense of harmony was also Von Thunen’s vision of the isolated state in general, “constructed not just an isolated state, but an ideal one”.

The rings were “less a description of how the world is, but how it should be once social harmony was realized”. The idea that the isolated state was not just descriptive but also prescriptive is emphasized by Barnbrock (1997), who writes that for von Thunen “the Isolated State is the ‘true’ representation of the final end mankind should strive for.” He further quotes von Thunen, who states “in the Isolated State … we have in mind only the final goal”. Harvey points out, however, that this was an essentially conservative goal. Through the imposition of the frontier wage and a more harmonious land use pattern, “class conflict and social polarization” would be minimized within German society. The lesson learned by neo-classical economists, Harvey argues, was that “economic science could seek and spell out principles of social harmony without appeal to the political economy of the spatial fix”.

The use of Von Thunen’s ideas within geography highlights the conflicts within a discipline that strives both to find regularity in the world and to explain the patterns seen in specific places. The Isolated State theory is attractive because it one of the few easily understood location theories for which empirical examples can be easily drawn. Of course, these examples are never absolutely correct and often seem overly simplistic. Barnes’ (1998) analysis of Von Thunen and the social construction of Von Thunen’s theory within economic geography particularly help understand the use of Von Thunen within agricultural economics supported by Watson (2005). The idea that Von Thunen’s theories were not just descriptive but also prescriptive more closely parallels the attitudes of the agricultural economists, who were searching not just to describe land use but often also to restrict it in order to build a more harmonious dairy economy.

• Formulation of the Theory towards Locational Decision:

In an attempt to test the hypothesis that market forces largely allocate the supply of sites among the alternatives uses within the urban area, Von Thunen’s agriculture land use model is adapted. The rising transportation costs explain the differentials rent among homogenous site as stated in the theory explained by Moss (2001). Understood the accessibility within an urban market will be at maximum at the city centre; the assumptions of a competitive market and a homogenous site will be given. As far as transport and commuting cost is concern the accessibility tend to decrease when distance from the market centre increases.

Moss (2001) concluded that firms and households have no intentions to change location and ceteris paribus because profits and other objectives are maximised. Next output is optimal and the maximum efficiency of the city as a productive unit is realised. In fact, the resulting structure of land uses reflect institutional arrangement such as zoning ordinance, transportation system and policies of financial institutional as well as the competitive ranking of the city, i.e. its economic base. The location of firms and households within this structure depends heavily upon competitive bidding for specific sites since rent differentials result market forces require from each site that rent resulting from maximum utilisation or highest and best use. Maximum economic rent occurs at the market centre because the supply of sites and average transportation and commuting costs for the local market are least according to Seyfried (1963).

               Seyfried (1963), followed by Linehan (2003) also suggested that the wages and interest are among production costs and they are assumed to be independent of location, but transportation costs rise as distance increases which later cause the rent, the surplus of gross revenue over production costs, decline proportionately. The supply of sites, i.e., more and larger land unit, increases with the distance from centre. Therefore competing user of sites will locate relative to their economic rent potential so that a structure of site values relative to location results from market forces. This structure of urban land market can be visualised as a rent or value surface; the market centre is the apex which is the point or area of highest site value. In the other word, rent decline with distance so do the value and land uses too change. If sites of equal value are related, the iso-value lines or contours are a function of site rent or value. Thus the spatial structure of land uses or the urban land market at a moment of time can be shown by the rent or value function or gradient.

• Conclusion:

               The chapter on literature has discussed the concept of urban land use, the linkage between urban land use and the Von Thune theory, limitation on the theory as well as formulation of Von Thunen theory. The following chapter will discuss on the methodology of the study used in gathering all the information needed.

CHAPTER 3:

RESEARCH METHODOLOGY:

• Introduction:

This chapter discusses in details the research methodology, which ensured that the objectives of the study can be achieved in a proper way. An appropriate research methodology application may avoid deviation against the objectives and gives clearer understanding on how the study is to be carried out. Validity of the research data and reliability of measurement will affect the practical research and accuracy of the result. Thus, the research methodology is directly connected to objective and problem statement of research.

The second part of this chapter will go into details of the case study of Bandar Saujana Putra, Selangor. According to Yin (2003) a case study design should be considered when:

1. the focus of the study is to answer “how” and “why” questions;
2. you cannot manipulate the behaviour of those involved in the study;
3. you want to cover contextual conditions because you believe they are relevant to the phenomenon under study; or
4. the boundaries are not clear between the phenomenon and context.

• Research Design:

Research design can be classified into exploratory research and conclusive research. Exploratory research design is mostly in qualitative nature while conclusive research design is in quantitative nature. It is more focus on the collecting data from primary or secondary data. It also involves in many qualitative data collection techniques such as focus groups and depth interview (Shukla, 2008). Qualitative data collection will provide a lot of information, however it also hard to interpret from the data collection. Meanwhile, qualitative case study is an approach to research that facilitates exploration of a phenomenon within its context using a variety of