Estimating Space Rents and Land Values in Alberta

Values of residential rents were established from direct observations of rents and related estimates of market prices as part of the development of a spatial economic model of Alberta using the PECAS modelling system. The estimates of market prices were drawn from available valuation data used in municipal tax assessments. The observations of market rents were gathered from online lists of offers. These were used to estimate the parameters of an equation that both (a) relates rent to purchase price and (b) explains how rents are impacted by spatially varying factors considered in PECAS. A Bayesian approach was used in estimation in order to incorporate prior knowledge from previous PECAS work and specify expected relationships to support results for certain types of development in areas where the data were limited. This provided a form of non-linear hedonic model using estimates of zonal-level base rents and the influences of parcel-level attributes adjusting these rents, including structure type, building quality and proximities to specific features. PECAS is designed to both explain these zonal-level base rents and also respond to them, indicating (a) how supply and demand interact to establish these rents, (b) how the demand for space is influenced by zonal-level attributes - such as neighbourhood school quality, proportion of green space and crime rate - along with accessibilities provided by the transportation system together with the spatial distribution of development, and (c) how the supply of space is adjusted by developer actions in the construction, renovation and/or renewal of space as capital investments.