An Empirical Study of Land Leverage as a Function of Market Value Using a Spatial Autoregressive Model

Land leverage is an expression coined to identify the ratio of the land value to the market value of a property. The model proposed here aims to estimate the land leverage as a function of the market value using a simple spatial autoregressive model. The reason underlying the proposed model is easily understood when considering that data on market values is much more accessible than information about land leverage. Therefore, the model lends itself to be used to estimate the land leverage for all of the locations the market value of which is known, but the land value is not. The empirical analysis focuses on about one hundred chief towns in Italy, and validation is also conducted concerning the city of Padua and its surrounding municipalities.