A New Real Option Value Due to ‘Demographic Risk’ in the Market for Developable Land

We study two option values in the developable land market in a French department (Nord): the classical option value relating to the short-run volatility of the land price and a long-run option value resulting from uncertainty about demographic change. The findings show that both are significant. First, the land price increases by 7.4-15.3% when the standard deviation (STD) of the land price rises by a STD. Second, an increase of one STD in the STD of the variation in population between 1982 and 1999 entails a 6% increase in the developable land price.