Evaluating the Long-Run Effects of Zoning Reform on Urban Development

Abstract

This paper presents a framework for assessing the long-run effects of zoning reform on urban development, housing construction, and dwelling prices. We begin by developing a version of the monocentric model of the city that features regulatory restrictions on the capital intensity of housing that vary across different residential zones. A key implication of the model is that differences in land price gradients between zones reflect differences in the optimal floorspace that developers build to. This facilitates empirical estimation of the anticipated supply response to zoning reform through the measurement of changes in land price differentials soon after policy announcement. We use the framework to evaluate a recently-implemented upzoning policy in Auckland, New Zealand, finding that changes in land price gradients in upzoned areas compared to non-upzoned areas is consistent with an approximate 18% increase in aggregate floorspace. Using plausible estimates of the house price elasticity of demand from the extant literature, this supply increase equates to a reduction in dwelling prices ranging between 23% and 39%, relative to the counterfactual of no upzoning

Keywords: Upzoning, Land Use Regulations, Redevelopment, Housing Construction, AMM model.