Test 2 Study Guide Flashcards
Which government power provides the legal basis for local governments to regulate land use?
public power of the state
Which type of market failure are building codes intended to address?
incomplete information
Which type of market failure are zoning ordinances intended to address?
externalities
Which type of market failure is the power of eminent domain intended to address?
monopoly
What are the two primary things that a zoning ordinance regulates?
land use & size
How is a properties floorspace-to-lot area ratio calculated?
sq. ft to floor space in all structures/ sq. ft of 10
What is the most common reason that a property owner would seek to have their property rezoned?
want to use the site in a way that is not allowed by current zoning
What purpose do zoning variances serve?
define how property can be used in specific areas
What does it mean for a property to be a nonconforming use?
existing property that is inconsistent with the current zoning regulations
What are some of the typical restrictions faced by a nonconforming use?
enlargement, rebuild or reconstruction, after a specified percentage of damages or deconstruction, changing to another nonconforming use, resumption after stated period of discontinuance
What are the advantages and disadvantages of a planned unit development?
local planning authorities evaluate the overall site plan instead of requiring the project to meet every element of the local zoning ordinance
- have to build what they approved and LOSE all flexibility once it’s approved
What are the two things that a government must prove for its use of its power of eminent domain to be considered legal?
The land is needed for public use and landowner has been justly compensated
How is it determined whether a property owner has been justly compensated?
the landowner receives fair market value
What does the process of inverse condemnation refer to?
landowner sues government seeking to force condemnation of their property
What might motivate a property owner to initiate the process of inverse condemnation?
some form of land control that has had a negative impact on value
What is the general principle that is used to determine whether a property owner should be compensated for the impact of a land-use regulation on their property?
as long as owner is left with an ability to generate a return on the property, compensation is NOT required
Regarding property taxes, how are the following calculated:
a. Market value
b. Assessed value
c. Taxable value
a. the government assesses the property and estimates the market value
b. some percentage of market value
c. lost after tax exemptions
What role do tax exemptions play in the property tax calculation?
reduce tax bills, don’t eliminate property taxes
Use the following information to calculate the annual property tax due:
Market value: $500,000
Assessed value: 75% of market value
Tax exemptions: $50,000
Millage rate: 40 mills
assessed value= $375,000
tax exemptions= $50,000
Equation: (325,000/1000) x 40
What were the four reasons that were given for why local governments like property taxes?
large tax base makes it possible to raise large amounts of revenue, fixed location of tax base makes it very hard to avoid or evade the property tax, owners of real estate are easily identified, easy to establish the value of properties
What is the difference between a present value and a future value?
Present value: value at “time zero”, equivalent amount in today’s money
Future value: value at future date
What is the difference between a lump sum and an annuity?
Lump sum: payment that occurs only at a single point in time
Annuity: constant payment every period for a given amount of time (at the end of each year for x amount of years)
What is the difference between discounting and compounding?
Discounting: pulling out the impact of time
(present value of a lump sum, present value of an annuity) PRESENT VALUE
Compounding: adding in the impact of time (future value of a lump sum, future value of an annuity) FUTURE VALUE
What is the relationship between the magnitude of a cash flow and its value?
The larger the cash flow, the HIGHER the value
What is the relationship between the timing of a cash flow and its value?
The earlier the cash flows, the GREATER its value
What is the relationship between the certainty of a cash flow and its value?
The riskier the cash flows, the LOWER their value
What is the difference between a regular annuity and an annuity due?
Regular annuity: an annuity in which the payments occur at the END of each period
Annuity due: an annuity in which the payments occur at the BEGINNING of each period
What is the relationship between the PRESENT value of a REGULAR annuity and the PRESENT value of an annuity DUE?
The present value of an annuity due is just the present value of a regular annuity where the value is multiplied by (1+ r)
What is the relationship between the FUTURE value of a REGULAR annuity and the FUTURE value of an annuity DUE?
The future value of an annuity due is just the future value of a regular annuity where the value is multiplied by (1+ r)
