Final answer:
The bid rent theory details how real estate values decrease with distance from the central business district, influencing urban land use. Neil Smith's Rent Gap Theory ties to this by explaining gentrification through real estate investment in undervalued areas. Shifts in income and tastes can also change housing demand, impacting rent control and market equilibria.
Step-by-step explanation:
The bid rent theory is a geographical economic concept that explains the variations in real estate prices and demand based on their proximity to a city's central business district (CBD). As distance from the CBD increases, the cost and competition for land typically decrease. This theory is linked to urban patterns of land use, as different land users, such as businesses and residents, will place varying levels of value on closeness to the city center.
Neil Smith's Rent Gap Theory provides an economic perspective on gentrification. He suggests that gentrification occurs when the potential value of urban housing vastly exceeds the actual depreciated value, offering investors a favorable risk-reward balance, prompting them to invest and improve these neighborhoods.
Similarly, rent control becomes a topic of debate when there is a substantial increase in rents, often driven by changes in income levels or tastes. Such changes shift the demand for rental housing, affecting both price and quantity in the housing market. As seen in the shift from demand curve Do to D1, an increase in demand leads to higher rents and expanded housing supply at a new equilibrium.