Does zoning follow highways?

We study whether local zoning policies are modified in response to demand shocks generated by new highways. We focus on the case of Spain during the period 1995–2007. The empirical strategy compares the variation in the amount of developable land before–after the construction of the highway in treated municipalities and in control municipalities with similar pre-treatment traits. Our results show that, following the construction of a highway, municipalities converted a huge amount of land from rural to urban uses. The amount of new land declared to be developable was larger in places with low construction costs or high demand, suggesting that zoning follows market forces. However, the impact of the highway was lower in places where residents were less favorable to development or where developers had more influence over zoning policies. Local political factors thus impede the full adaptation of zoning to economic changes.