Making Housing Affordable? The Local Effects of Relaxing Land-Use Regulation

Abstract

This paper examines the effects of relaxing land-use regulations on housing supply and rents at the local intra-city level. We apply a staggered difference-in-difference model, exploiting exogenous differences in the treatment timing of zoning plan reforms as identifying variation. Increasing the allowable floor-to-area ratio (FAR), i.e., upzoning, significantly increases the living space and housing units by approximately 9% in the subsequent five to ten years. This effect is stronger for larger upzonings and rasters where zoning is binding. Upzoning also has a positive spillover effect on the housing supply on adjacent rasters. Furthermore, upzoning leads to no difference in hedonic rent on upzoned and non-yet-upzoned rasters since the rent effect dissipates throughout the city. These results show that upzoning is a viable policy for increasing affordability. However, the effects depend on the upzoning policy design and take several years to materialize.

Keywords: Affordability, land-use regulations, zoning, densification, housing supply, rents