The Evolution of the Land Development Industry: An Agent-Based Simulation Model

Urban spatial structure is shaped by decisions of land developers that both react to and influence urban plans. The paper presents an agent-based model of the evolution of the land development industry in a city regulated by a land-use plan that is modified from time to time by the planner. At the heart of the model are investment decisions of developers that generate profits and accumulated assets, which in turn affect investment decisions. In the model, the economic state of the developers is initially equal. Over time, certain developers accumulate wealth that enables them to make larger investments and take higher risks by investing in low priced lands that are not zoned for urban development. These risky investments are motivated by the prospect of obtaining land-use variance. We demonstrate that when the land market favors large developers who are more likely to obtain construction permits from the planner, a positive feedback effect is created, which leads to an oligopolistic market, controlled by a few large developers. We also demonstrate that the interaction between risk-taking developers and a flexible planner who approves incremental amendments and periodic updates to the land-use plan may result in bifurcations of the city structure, which leads to a polycentric city.