From Central Planning to Centrality: Krakow's Land Prices After Poland's Big Bang

We examine commercial land markets in Krakow, Poland over a 10‐year period of transition from socialist management to a market economy. We explore the spatial and temporal evolution of land prices over this period. In particular, we are interested in identifying trends toward or away from centrality, and in discovering whether or not these trends acted on the city center alone or over a set of centers. The data set we employ is uniquely appropriate for this purpose as the densifying force of “highest‐and‐best” use—typically found in market‐oriented cities—was absent under four decades of socialist planning, leaving undeveloped land scattered throughout the city. Free of quality control issues associated with disentangling the value of land from properties in which land and structures are bundled, the data offer a clean assessment of land prices within an urban area. We employ a novel, iterative approach to identify pricing centers—“nodes” of similarly sized residuals—which we interpret as evidence of omitted spatial amenities. Using this approach, we find that the price gradient in Krakow evolved toward concentration, but concentration in several centers rather than in just one. We find that the exclusion of proximity to these centers leads to biased coefficients in the hedonic regressions; we also find that the majority of the apparent spatial autocorrelation in the aspatial regressions results from the omission of proximity to these centers.