The Impact of Planning Policies on Investment in Industrial Buildings

This paper explores the relationship between the planning environment and investment in commercial and industrial buildings in the Netherlands. Most past research on the impact of the planning environment on outcomes in real estate markets has investigated the impact of regulation on (house) prices, with the majority of studies indicating that increased planning restrictions lead to higher prices. However, these studies do not consider the impact of planning on construction activity directly. Furthermore, most existing empirical work has narrowed the effect of the planning environment to the impact of development controls. In addition to a measure of restrictions on industrial land release, this paper incorporates an indicator of regeneration initiatives for rundown industrial sites into a model of investment in buildings on industrial sites. Whereas planning restrictions are generally expected to exhibit a negative impact on new construction (this paper also explores the impact of planning constraints on investment in modernization and refurbishment), the latter measure is assumed to capture some of the positive impacts of planning. In fact, one of the main objectives of regeneration initiatives for rundown industrial sites is to stimulate private investment in new and existing buildings on these sites. This study makes use of micro data on expenditure in modernization, refurbishment and new buildings by firms located on industrial sites. In this regard, we use data on non-residential building permits issued by Dutch municipalities between 1997 and 2008. Besides the local planning environment, this paper also considers the impact of other location variables such as accessibility as these are assumed to increasingly dominate investment activity at more disaggregate spatial levels.