January 1997

Geo Factsheet Number 6

An Idiot's Guide To Bid Rent

Bid Rent is a very popular essay title on many syllabuses. It is also one which is very often answered in a superficial way and one which
seems to cause great confusion for many students. This Factsheet will explain bid rent in simple terms and outline its major limitations
as an urban model.

Bid Rent is a model. It tries to explain urban Fig 2. Urban Bid Rents
structure in terms of the profitability of land.
Bid Rent is based on several assumptions:
1. The highest bidder - i.e. the individual or Exam Hint - It is the margin of transference
company willing to pay the highest rent - (i.e. the point where the curves for competing
will succeed in using any piece of land. uses intersect) that determines the land use
Retail
bid-rents - not the point where the bid rent is zero.
2. The highest bidder is probably going to be
the one which can make the greatest profit
from setting up on that piece of land. Rent
z
3. The city centre or CBD is where greatest Industrial bid-rents
profitability can be made ( because it’s the
most accessible ) so this is where bid rent
(the rent that someone is willing to pay ) Residential bid-rents
will be the highest.
All of this is usually summed up in a graph Retail
w
which shows the rent which any user is willing
to pay as distance from the CBD increases Industry
(See Fig 1).

Fig1. Bid Rent Curve

Residential

20 R
Dominant
land use
Rent £/sq metre

15
1234567890123456789012345678901
1234567890123456789012345678901
10 1234567890123456789012345678901
1234567890123456789012345678901
Fig 3.
1234567890123456789012345678901
1234567890123456789012
1234567890123456789012345678901
1234567890123456789012
1234567890123456789012345678901
PLVI
5 1234567890123456789012
1234567890123456789012
1234567890123456789012345678901
1234567890123456789012
1234567890123456789012345678901
1234567890123456789012
R' 1234567890123456789012
1234567890123456789012345678901
^increasing
1234567890123456789012
1234567890123456789012345678901
1234567890123456789012
1234567890123456789012345678901
Retail
1234567890123456789012
rent
X y
1234567890123456789012increasing
Distance from CBD 1234567890123456789012345678901
1234567890123456789012
1234567890123456789012345678901
1234567890123456789012 distance
Distance from 1234567890123456789012from
point in the CBD), the rent which retailers
1234567890123456789012345678901
are 1234567890123456789012
1234567890123456789012345678901
city centre
1234567890123456789012 CBD
willing to pay decreases rapidly. In other words, 1234567890123456789012
1234567890123456789012345678901
Industry
1234567890123456789012
R-R' shows the rent that Retailers are willing to
1234567890123456789012345678901
retailers have a steep bid rent curve. Figure 2 1234567890123456789012
1234567890123456789012
shows bid rent curves for other potential 1234567890123456789012345678901
pay for land. They are willing to pay a lot for users. 1234567890123456789012
land right in the middle of the CBD (because 1234567890123456789012345678901
1234567890123456789012
1234567890123456789012345678901
All of the users are willing to pay most rent for
^
they can make most profit there). As distance
from the CBD increases they are willing to pay distance from the CBD increases. However
1234567890123456789012345678901
land in the city centre and progressively less as
1234567890123456789012345678901
the
less and less. Even at a short distance from the 1234567890123456789012345678901
1234567890123456789012345678901
steepness of the bid rent curve varies. Beyond
CBD, the amount they are willing to pay is greatly point W industry is willing to pay the most1234567890123456789012345678901
rent
1234567890123456789012345678901
Residential
reduced.
At point x they would pay £20 per square metre
(£Z/psm), hence that is the land use which
would expect beyond that point. Residential1234567890123456789012345678901
we
1234567890123456789012345678901
land
of land. At point y they would only pay £5 1234567890123456789012345678901
is found further out still because individual
1234567890123456789012345678901
psm. Retailers need many customers and a high
turnover which would be difficult to achieve on either retailers or industry would.
1234567890123456789012345678901
households cannot afford to pay the rent which
city
^

land at y. Therefore as you move away from the Figure 3 shows the predicted pattern of land use boundary
Peak Land Value Intersection (the most valuable away from the CBD using the bid rent model.

1
An Idiot's Guide To Bid Rent Geo Factsheet

The bid rent model places great importance on How well does the bid rent model The model assumes:
accessibility. Accordingly, it is expected that
bid rents would be high along the major roads
explain land use patterns within 1. that the CBD is the point of maximum
which lead out of a city and along, for example, cities? accessibility - certainly not the case in many
outer ring roads. When major roads such as these cities.
intersect, secondary land value peaks may be The main criticisms of the bid rent model are as
expected to occur - suburban shopping centres follows; 2. that the CBD is where there is the greatest
or industrial estates may develop at such points concentration of employment. Again, this
(See Fig 4). may not be true. Many depressed inner cities
have extensive areas of low employment.
Equally, the development of out-of-town
Fig 4. shopping centres and retail parks (see
Factsheet 11), which take advantage of
CBD
(peak land value intersection) cheap, often reclaimed land has disrupted
main roads leading to
land values.
suburbs
secondary (subsidiary) (arterial road) 3. that land will be used optimally i.e. the use
land value peak intersection of arterial to which any piece of land will be put will be
road and outer ring road
the one which is most profitable. This fails
to take into account the expense of buying
and selling.

The Bid Rent model is therefore too simplistic

as a complete explanation of the pattern of even
retail land use within a city. However, it does
offer some explanation of Burgess’ concentric
outer ring road zone model and it can be used to interpret some
features of other models such as Harris and
suburbs Ullman’s Multiple Nucleii model. These and
other urban models will be discussed in future
Factsheets.

Source: Waugh (1990)

The model fails to take account of:

Exam Hint - High value points outside the
CBD do not fit in with the Burgess model.
1. The topography of a city which can exert an
important influence on the pattern of land
use.
For all users there will be a trade-off between the
expense of using land in the CBD and the 2. Inherited land uses. For example, relatively
increasing transport costs associated with land
Bibliography;
low class housing may have occupied what Waugh D (1990)
further away from the CBD (See Fig 5). is now high value land near the city centre, Geography. An Integrated Approach. Nelson.
for over a century.
Fig 5. Cost of transport
3. The imperfect knowledge of both the buyer
Acknowledgements;
Cost of land This Geo Factsheet was researched and
and seller who both ask “ How much is it
really worth ?”. written by Mark Smith.

4. The importance of non-monetary factors Geo Press

such as sentimentality. 10 St Pauls Square
Birmingham
5. Local and national government intervention B3 1QU
in land use which is necessary to ensure that
unprofitable but essential uses such as Geopress Factsheets may be copied free of charge
hospitals and schools do not get squeezed by teaching staff or students, provided that their
out and so that problems such as traffic school is a registered subscriber.
congestion, noise and polluting types of
Equilibrium Location
industry are managed. No part of these Factsheets may be reproduced,
Distance from centre stored in a retrieval system, or transmitted, in
^

any other form or by any other means, without

the prior permission of the publisher.

ISSN 1351-5136
2