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How does that work? It seems to be a well-studied effect, yet I would naively assume that an owner of a large parcel in such a market would always choose to subdivide that parcel, thereby making more money, up until the point where the thereby increased supply of small parcels and reduced supply of large ones eliminated the effect. I could imagine constant-cost overheads (if you need the same number of real estate + escrow + whatever agents whether you're selling a fifth of an acre or 50 acres, the 1/5-acre option has 25x as much transaction cost per square foot) ... but economists seem to be modeling the plattage effect as logarithmic, and I don't see how that would happen at all.
Many big businesses like Walmart, Target etc require large parcels all in one segment to operate by law. Also, I forgot to mention they get massive subsidies on their parking lots as well since parking lots are often not taxed like normal parcels or have specific adjustments/write-ins from the city.
Those are great demand-side reasons for Walmart to bid up the price of large parcels ... but apparently they didn't, so what's the supply-side reason why someone would want to sell them a parcel anyway? If I can make $M by selling N acres to Walmart but I can make 2($M/2+$P) by instead selling N/2 acres each to a restaurant and a gym, why would I ever do the former if the premium $P for the latter is positive?
Subdivision is not always trivial. I would not say that the there is only a single fixed cost, there are also variable costs associated with land surveys, environmental surveys, administration, utilities, etc.
Then there are selection effects. Areas with large blocks of land are usually more rural which have lower land prices.
I have a feeling that the complete picture here has to do with the marginal utility of developed vs undeveloped land, economies of scale, and maybe commercial vs residential markets.
It seems intuitive to me that the utility value of developed land does not scale linearly with size, unless you're a farmer or something.
If I'm a large developer that can afford to buy a large parcel, subdivide, AND develop those parcels, I will likely (up to a point) get a better ROI from a larger number of smaller plots. In SFH residential markets this happens often because there is a consumer desire to "own" their plot. In commercial markets, this demand matters less, so the ROI maximizing strategy is to buy a large plot, build X storefronts, and rent to tenants. The size and distribution of those storefronts should reflect the market for commercial renters, and I think that is what you do see (a decent mix of large home-depot style tenants and smaller independent businesses).
Yet on the other hand, selling a small plot of undeveloped land is challenging since you need to develop it, and you will almost always be outcompeted by large developers who can afford to buy the larger plot in one go.
So you have a market dynamic where both things are true: the utility (and marginal market) value of the developed land is proportionally greater for small plots (or small storefronts), yet it is not always useful to simply buy a large plot, subdivide, and resell.
All this is to say, holders of large plots of undeveloped land are usually incentivized to sell in one go. Whereas developers are incentivised to buy large plots and then extract maximum utility via subdivision or multiple storefronts, which is what I think we do see in practice.
That all makes sense; thank you!
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