Estimating the Economic Value of Zoning Reform

46 Pages Posted: 1 Nov 2021 Last revised: 11 Jun 2022

See all articles by Santosh Anagol

Santosh Anagol

University of Pennsylvania - Wharton School of Business - Business Economics and Public Policy Department

Fernando V. Ferreira

University of Pennsylvania - The Wharton School

Jonah Rexer

Princeton University

Date Written: October 2021

Abstract

We develop a framework to estimate the economic value of a recent zoning reform in the city of Sao Paulo, which altered maximum permitted construction at the city-block level. Using a spatial regression discontinuity design, we find that developers file for more multi-family construction permits in blocks with higher allowable densities. We incorporate these micro-estimates into an equilibrium model of housing supply and demand to estimate the long term impact of zoning changes. Supply responses from the reform produce a 2.2 percent increase in the total housing stock, leading to a 0.5% reduction in prices on average, with substantial heterogeneity across neighborhoods. Consumer welfare gains due to price reductions are small, but increase 4-fold once we account for changes in the built environment, with more gains accruing to college-educated and higher income households. However, nominal house price losses faced by existing homeowners and landlords overshadow all consumer welfare gains.

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Suggested Citation

Anagol, Santosh and Ferreira, Fernando V. and Rexer, Jonah, Estimating the Economic Value of Zoning Reform (October 2021). NBER Working Paper No. w29440, Available at SSRN: https://ssrn.com/abstract=3953966

Santosh Anagol (Contact Author)

University of Pennsylvania - Wharton School of Business - Business Economics and Public Policy Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6372
United States

Fernando V. Ferreira

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-898-7181 (Phone)
215-573-2220 (Fax)

HOME PAGE: http://real.wharton.upenn.edu/~fferreir/

Jonah Rexer

Princeton University ( email )

22 Chambers Street
Princeton, NJ 08544-0708
United States

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