ECONOMIC DEVELOPMENT DEMANDS ADDITIONAL SPACE
Urban growth is a reflection of economic growth. Economic activity takes place in space.
As the amount of economic activity taking place increases, so does the amount of space needed to 'house' that activity. The amount of space needed can be provided by making either making more intense use of existing urbanized area, or by making additional urban land available.
As a thought experiment, consider a 'bounded city', which can no longer expand in space because of of a 'hard boundary' (Political, legal, geographic, regulatory, etc.). This city is thus limited in its capacity to expand its urban area. But because economic activity takes place in space, contined expansion of economic activity requires additional space. Without the capacity to add additional urban space, existing urban space must be used more intensively. A combination of three factors makes this difficult.
Theoretically, urban land is developed in a manner characteristic with its highest and best use, so that in a context of limited land, urban land would convert to high value uses. In reality, development occurrs in accordance with the highest and best use at the time of development. Changes in the amenity of a parcel over time means that the highest and best use can also change. However, the capacity of the parcel to adapt to these changes is minimal. Once developed, a parcel's land use is fixed by the structure of the developed building. Many structures are so specialized as to be unsuitable for other uses, regardless of changes in the highest and best use. Urban land use thus remains fixed over long periods of time.
Secondly, urban land suffers from fragmentation. Large parcels are partially developed, or broken into smaller parcels. Over time, this process generates progressively smaller and less coherent parcels for development, which are progressively more difficult to develop. The impact of this dynamic is compounded over time. Because of differences in construction and maintenance, different structures depreciate at different rates and are available for redevelopment at different times. This makes it difficult to recombine smaller parcels into larger parcels.
REPLACING EXISTING USES
Redevelopment occurrs when the income generated by new development is sufficient to cover the cost of clearing old structures, erecting new ones, and covering the resultant loss of income from the destruction of old structures. As urban land becomes scarcer, the value of urban land and the resultant rents that can be charged rises, making it more difficult to find a replacement use that will provide sufficient income to be worth redeveloping.
Given the constraints posed by re-use, urbanized area tends to expand in response to economic development. But urban expansion does not occurr in a random manner, but in a pattern dictated by the function of urban land markets. Because the value generated by undeveloped parcels on the urban fringe (greenfields) is extremely minimal, they are developed in preference to redeveloping existing sites.
Employment centers occupy the most central locations—not out of a direct desire for centrality, but because of their primacy in the metropolitan development process. They come first, and the rest of the metropolis orients itself around them. Second most-centrally located are retail uses. While they follow residential in the development process, the competitive advantage represented by a more central location ensures willingness to 'outbid' residential users. Residential uses located at the least central locations, where land values are lowest.
Centrality should be understood in a network sense, rather than in a geographic sense. While their has historically been a correlation between the geographic center and centrality, it is not a causal linkage. Historically, the center of a city occupied the most 'central' location, because it was located en-route to the largest number of destinations. Development of limited access transportation networks such as subways and freeways changes this dynamics, so that proximity to transportation network access points becomes the best measure of centrality.