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Do supply restrictions raise the value of urban land? The (neglected) role of production externalities

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  • Satyajit Chatterjee
  • Burcu Eyigungor

Abstract

Restriction on the supply of new urban land is commonly thought to raise the value of existing urban land. Our paper questions this view. We develop a tractable production-externality-based circular city model in which firms and workers choose locations and intensity of land use. Consistent with evidence, the model implies exponentially decaying density and price gradients. For plausible parameter values, an increase in the demand for urban land can lead to a smaller increase in urban rents in cities that cannot expand physically because they are less able to exploit the positive external effect of greater employment density. ; Supersedes Working Paper 12-25.

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Paper provided by Federal Reserve Bank of Philadelphia in its series Working Papers with number 13-37.

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Date of creation: 2013
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Handle: RePEc:fip:fedpwp:13-37

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Keywords: Land use;

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  1. Ding, Chengri & Knaap, Gerrit J. & Hopkins, Lewis D., 1999. "Managing Urban Growth with Urban Growth Boundaries: A Theoretical Analysis," Journal of Urban Economics, Elsevier, vol. 46(1), pages 53-68, July.
  2. Edward L. Glaeser & Matthew E. Kahn, 2001. "Decentralized Employment and the Transformation of the American City," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1912, Harvard - Institute of Economic Research.
  3. PierrePhilippe Combes & Gilles Duranton & Laurent Gobillon & Diego Puga & Sébastien Roux, 2009. "The Productivity Advantages of Large Cities: Distinguishing Agglomeration from Firm Selection," SERC Discussion Papers, Spatial Economics Research Centre, LSE 0027, Spatial Economics Research Centre, LSE.
  4. Huang, Haifang & Tang, Yao, 2012. "Residential land use regulation and the US housing price cycle between 2000 and 2009," Journal of Urban Economics, Elsevier, vol. 71(1), pages 93-99.
  5. Nicolai V. Kuminoff & Jaren C. Pope, 2013. "The Value of Residential Land and Structures during the Great Housing Boom and Bust," Land Economics, University of Wisconsin Press, University of Wisconsin Press, vol. 89(1), pages 1-29.
  6. Glaeser, Edward & Saiz, Albert & Gyourko, Joseph, 2008. "Housing Supply and Housing Bubbles," Scholarly Articles 2962640, Harvard University Department of Economics.
  7. J.V. Henderson, 1972. "The Sizes and Types of Cities," Working Papers, Queen's University, Department of Economics 75, Queen's University, Department of Economics.
  8. Jan K. Brueckner, 1990. "Growth Controls and Land Values in an Open City," Land Economics, University of Wisconsin Press, University of Wisconsin Press, vol. 66(3), pages 237-248.
  9. Fujita,Masahisa, 1991. "Urban Economic Theory," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521396455.
  10. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 125(3), pages 1253-1296, August.
  11. Bertaud, Alain & Brueckner, Jan K., 2005. "Analyzing building-height restrictions: predicted impacts and welfare costs," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 35(2), pages 109-125, March.
  12. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2011. "Winners and Losers in Housing Markets," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 43, pages 255-296, 03.
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