We estimate the effect of land use regulation on the value of land by exploiting variation in regulation and land values across municipal borders. Since the value of land gives us the market’s measure of the attractiveness of a location, our estimates allow us to draw conclusions about the effect of land use regulation on welfare. Reductions to an aggregate measure of regulatory intensity are welfare improving. Looking at a more detailed description of regulation leads to a more subtle prescription. Complexity of the planning process and a planning process subject to political manipulation are most harmful. Not all land use regulation is harmful, however. Regulation which requires minimum lot sizes for residential development increases land values.
Matthew A. Turner, Andrew Haughwout, and Wilbert van der Klaauw
Federal Reserve Bank of New York
January 20, 2011
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