Underground Land Values

In general, ignoring such a potential resource may seriously mislead future underground land policies and implementations. It can lead the public as well as the private sector to an over-consumption of shallow subsurface space, adding more confusion to the often chaotic underground land use and underconsumption of deeper underground space. Such a situation, together with the behavior of underground land as a subprivate good, multiplies the externalities, which are negative, reciprocal and locally inexhaustible. Also, considering subsurface land value in economic and engineering studies of underground projects, such as cost-benefit analysis, increases their reliability for a higher quality decision-making process.

From the conclusion:

Since urban underground land, as such, is not a separate good with an explicit existing market, its market value is not generally observed and, therefore, it has to be estimated. Both a theoretical basis and a practical way to calculate subsurface estates are important for the estimation. From the theoretical side, the formula for calculating its shadow price has been derived. A formal but simple way to estimate the underground land value has also been proposed. The applied method suggested in this paper (isolating the implicit underground land value from the overall land value) makes the estimation feasible.

Also, the implementation of the procedure is considerably quick and inexpensive, which represents an advantage for its application in economic and planning studies.Furthermore, these approaches allow underground land prices to be treated similarly to surface property prices. For instance, a detailed map of underground land prices can be drawn, so that other than average prices may be used. Such a map can be three-dimensional, reflecting how prices also vary according to the depth of the subsurface space considered.Those prices may then be used by economic agents and planners in order to decide where and how new underground development should take place, because the model proposed also takes into account non optimal development situations. From their identification, and the way the variables involved are affected, different economic policies for underground land arise.

In particular, incentive or tax policies may be recommended in order to achieve a better allocation of resources in subsurface space, since “market” prices are not optimal because of the behavior of underground land as a subprivate good with externalities.Finally, the use of the simple model of implicit market prices proposed here, has practical implications. For instance, it helps to fix an appropriate price to pay land owners in a possible compulsory purchase situation. Even if the given space to be expropriated is not used by the land owner, there might be a right to compensation, since the existence of a demand implies the possibility of a negotiation at strictly positive prices.

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Thanks to Chris Steins