The demand for urban land is growing, yet the supply is both genuinely and artificially limited. This situation radically increases land costs and in turn consumes scarce investment capital which could be better used elsewhere. It also irrationally distorts patterns of urban growth and development. This latter fact leads directly to a third round of undesirable consequences; as the urban infrastructure becomes more costly and inefficient, and institutions and facilities fail to provide adequate services to their populations, urban social and economic imbalances and injustices are intensified, the quality of the total urban environment erodes and it becomes difficult to harmonize man's activities with the components of the natural environment. Thus pollution, noise and other hazards all increase. The issue now is no longer the economic value of the land as determined by market processes, but the social value as determined by the goals and needs of urban society.
In most countries with a market economy, efforts to implement housing and urban development programmes are hindered by the skyrocketing costs of urban land. In countries with high rates of economic and/or urban population growth, the price of land in urban areas is rising faster than incomes. Other factors driving up the value of urban land are the public decisions which change these land uses, the general world-wide preference pattern that exists for single-family houses, and inflation. Given these demand schedules and its inelastic supply, urban land has become a speculative investment commodity which is relatively risk-free and which may offer very high rates of return on capital. As such, it provides security against inflation and an uncertain future, an important consideration in developing countries where opportunities to invest personal savings in stocks, bonds and other 'safe' economic ventures are extremely limited.
Nevertheless, because of the artificial scarcity of land created by the withdrawal of this commodity from the market for speculative purposes, land speculation is another major factor contributing to the increase in urban land prices. This is particularly true of countries where small, powerful groups own or acquire the best urban land and, through oligopolistic marketing and pricing practices, further interfere with the free operation of the economic laws of supply and demand. These excessive land costs, taken together with the wasteful disuse of infrastructure which passes through land speculatively withheld from the market, comprise a steadily rising share of total housing costs, costs which are also on the ascendancy because of increased building and materials costs and the sometimes inordinate effective demand that exists for scarce housing. Because of these costs and the ability of commerce and luxury housing to outbid government-sponsored housing for prime urban real estate, low-income housing projects, such as sites and services, are usually located on the outermost edges of cities, far from urban services and downtown places of work, where the occupants lead geographically and socio-economically segregated lives.
The amount of urban land available for city use is generally neither scarce nor monopolized. There may be the appearance of land scarcity in small countries where population is large in relation to available sites, or in cities hamstrung by poor transportation or boundary problems. There may also be concentration in some parts of Latin America where latifundia survive. Finally, traffic concentrations, poor or inadequate development and sectional over-congestion may also be erroneously ascribed to land scarcity or monopoly. With sound planning, constructive legislation and adequate transportation and utilities, however, sufficient land generally can be made available for housing and the requisite neighbourhood facilities.