Economics of Greenfield Urban Planning

Urban planning has shaped cities for millennia, demarcating property rights and mitigating coordination failures, but its rigidities often conflict with market-driven development. Although planning is common in high-income countries, rapidly growing cities in the developing world are characterized by urban informality. Greenfield urban planning is a key option, but we lack economic theory and evidence to evaluate planners’ choices. This paper presents a dynamic model to evaluate the effects of plot sizes and amenities on consumer outcomes. This framework is applied to a flagship project in Dar es Salaam that subdivided peri-urban land into more than 36,000 formal plots, which people purchased and built homes on. We assemble a novel dataset using administrative records, satellite imagery, and primary surveys. Informed by the model, we study the effects of planning choices using within-neighborhood variation and spatial regression discontinuities. We find that by securing property rights and local road access, the project doubled land values relative to nearby unplanned areas. Connectivity to the city is prized, as evidenced by price appreciation and construction rate differences between and within areas. The price elasticity of bare land to plot size is -0.5, suggesting an oversupply of large plots despite the sorting of highly educated owners into the project and its larger plots. In contrast to connectivity and plot size, other planning choices, such as intended non-residential land uses and plot configurations, matter less. Counterfactual analysis using the estimated structural model shows that while land value maximization provides larger plots, welfare maximization provides smaller plots serving more low-income people.