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The Effect of Zoning on Housing Prices

Author

Listed:
  • Ross Kendall

    (Reserve Bank of Australia)

  • Peter Tulip

    (Reserve Bank of Australia)

Abstract

Zoning regulations provide benefits, but they also restrict housing supply and hence raise prices. This paper quantifies their importance by comparing prices to the marginal costs of supply at different points in time. For detached houses, marginal costs comprise the dwelling structure and the land that other home owners need to forego. Relative to our estimates of these costs, we find that, as of 2016, zoning raised detached house prices 73 per cent above marginal costs in Sydney, 69 per cent in Melbourne, 42 per cent in Brisbane and 54 per cent in Perth. Zoning has also raised the price of apartments well above the marginal cost of supply, especially in Sydney. We emphasise that this is not the amount that housing prices would fall in the absence of zoning. The effect of zoning has increased dramatically over the past two decades, likely due to existing restrictions binding more tightly as demand has risen.

Suggested Citation

  • Ross Kendall & Peter Tulip, 2018. "The Effect of Zoning on Housing Prices," RBA Research Discussion Papers rdp2018-03, Reserve Bank of Australia.
  • Handle: RePEc:rba:rbardp:rdp2018-03
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    File URL: https://www.rba.gov.au/publications/rdp/2018/pdf/rdp2018-03.pdf
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    References listed on IDEAS

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    Cited by:

    1. Calvin He & Gianni La Cava, 2020. "The Distributional Effects of Monetary Policy: Evidence from Local Housing Markets," RBA Research Discussion Papers rdp2020-02, Reserve Bank of Australia.
    2. Trent Saunders & Peter Tulip, 2020. "A Model of the Australian Housing Market," The Economic Record, The Economic Society of Australia, vol. 96(S1), pages 1-25, June.
    3. Keaton Jenner & Peter Tulip, 2020. "The Apartment Shortage," RBA Research Discussion Papers rdp2020-04, Reserve Bank of Australia.
    4. Trent Saunders & Peter Tulip, 2019. "A Model of the Australian Housing Market," RBA Research Discussion Papers rdp2019-01, Reserve Bank of Australia.
    5. Peyman Khezr & Shabbir Ahmad, 2018. "Anchoring in the Housing Market: Evidence from Sydney," Discussion Papers Series 596, School of Economics, University of Queensland, Australia.

    More about this item

    Keywords

    housing; housing prices; land prices; zoning; land use;

    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R52 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Land Use and Other Regulations

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