Full Citation
Title: Is the Rent Too High? Aggregate Implications of Local Land-Use Regulation
Citation Type: Miscellaneous
Publication Year: 2015
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Abstract: Highly productive U.S. cities are characterized by high housing prices, low housing stock growth, and restrictive land-use regulations (e.g., San Francisco). While new residents would benefit from housing stock growth due to higher incomes or shorter commutes, existing residents justify strict local land-use regulations on the grounds of congestion and other costs of further development. This paper assesses the welfare implications of these local regulations for income, congestion, and urban sprawl within a general equilibrium model with endogenous regulation. In the model, households choose from locations that vary exogenously by productivity and endogenously according to local externalities of congestion and sharing. Existing residents address these externalities by voting for regulations that limit local housing density. In equilibrium, these regulations bind and house prices compensate for differences across locations. Relative to the planners optimum, the decentralized model generates spatial misallocation whereby high-productivity locations are settled at too-low densities. The model admits a straightforward calibration based on observed population density, expenditure shares on consumption and local services, and local incomes, as well as house prices and construction costs in the most expensive cities. Quantitatively, welfare and GDP would be 1.4% and 2.1% higher, respectively, under the planners allocation. Abolishing zoning regulations entirely would increase GDP by 6%, but lower welfare by 5.9% as the increased consumption would be outweighed by greater congestion costs. However, if the profits from development are not shared broadly, than the typical household may see an improvement in welfare from zoning abolition.
Url: http://www.econ.ucla.edu/jobmarket/2015/BuntenPaper.pdf
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Authors: Bunten, Devin
Publisher: UCLA
Data Collections: IPUMS USA
Topics: Housing and Segregation, Land Use/Urban Organization
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