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How Do Density Ceiling Controls Affect Housing Prices and Urban Boundaries?

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  • Jyh-Bang Jou
  • Tan (Charlene) Lee

Abstract

This article investigates how density ceiling controls in a monocentric city with a stochastic population affect housing prices and the location of the city boundary. We employ a real options model in which each landowner owns one unit parcel of land and chooses the timing and the level of capital intensity for development of the parcel. The landowner incurs up-front development costs that are irreversible and thereafter receives stochastic urban rents. A tighter density ceiling control will extend the urban boundary and decrease housing prices. The urban spatial expansion problem will be intact, but the landowner will delay development when city population is expected to grow less rapidly over time or becomes more volatile. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Jyh-Bang Jou & Tan (Charlene) Lee, 2015. "How Do Density Ceiling Controls Affect Housing Prices and Urban Boundaries?," The Journal of Real Estate Finance and Economics, Springer, vol. 50(2), pages 219-241, February.
    • Handle: RePEc:kap:jrefec:v:50:y:2015:i:2:p:219-241
    DOI: 10.1007/s11146-014-9460-5
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    Cited by:

    1. Gluszak, Michal & Zygmunt, Robert, 2018. "Development density, administrative decisions, and land values: An empirical investigation," Land Use Policy, Elsevier, vol. 70(C), pages 153-161.

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    More about this item

    Keywords

    Capital intensity; Density ceiling controls; Development timing; Real options; Urban boundary; G13; R52; R58;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • R52 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Land Use and Other Regulations
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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