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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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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The Birth and Growth of Modern Zoning (Part I): From Utopia to FARtopia
      by Jason Barr in Skynomics Blog on 2021-05-11 12:18:12

    Citations

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    Cited by:

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    2. Murray, Cameron, 2019. "Marginal and average prices of land lots should not be equal: A critique of Glaeser and Gyourko’s method for identifying residential price effects of town planning regulations," OSF Preprints fnz7v, Center for Open Science.
    3. Peyman Khezr & Shabbir Ahmad, 2018. "Anchoring in the Housing Market: Evidence from Sydney," Discussion Papers Series 596, School of Economics, University of Queensland, Australia.
    4. Cameron K. Murray, 2022. "A Housing Supply Absorption Rate Equation," The Journal of Real Estate Finance and Economics, Springer, vol. 64(2), pages 228-246, February.
    5. 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.
    6. Keaton Jenner & Peter Tulip, 2020. "The Apartment Shortage," RBA Research Discussion Papers rdp2020-04, Reserve Bank of Australia.
    7. Saizal Bin Pinjaman & Sarma Aralas & Debbra Toria Nipo, 2022. "The Role of Demography, Geographical Constraints, and Land Regulations on House Price in Malaysia," Business and Economic Research, Macrothink Institute, vol. 12(1), pages 6272-6272, December.
    8. Murray, Cameron K., 2020. "Time is money: How landbanking constrains housing supply," Journal of Housing Economics, Elsevier, vol. 49(C).
    9. 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.
    10. Gilbert, Catherine & Gurran, Nicole, 2021. "Can ceding planning controls for major projects support metropolitan housing supply and diversity? The case of Sydney, Australia," Land Use Policy, Elsevier, vol. 102(C).
    11. Murray, Cameron, 2019. "The Australian housing supply myth," OSF Preprints r925z, Center for Open Science.
    12. Cameron K. Murray, 2021. "Marginal and average prices of land lots should not be equal: A critique of Glaeser and Gyourko’s method for identifying residential price effects of town planning regulations," Environment and Planning A, , vol. 53(1), pages 191-209, February.
    13. Murray, Cameron, 2021. "Explainer: Bad housing supply assumptions," OSF Preprints 4jmb8, Center for Open Science.
    14. Zhu, Jin & Pawson, Hal & Han, Hoon & Li, Bingqin, 2022. "How can spatial planning influence housing market dynamics in a pro-growth planning regime? A case study of Shanghai," Land Use Policy, Elsevier, vol. 116(C).
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    16. Murray, Cameron & Phibbs, Peter, 2022. "Evidence-lite zone: The weak evidence behind the economic case against planning regulation," OSF Preprints 69m23, Center for Open Science.
    17. Peter Phibbs & Nicole Gurran, 2021. "The role and significance of planning in the determination of house prices in Australia: Recent policy debates," Environment and Planning A, , vol. 53(3), pages 457-479, May.
    18. Murray, Cameron & Gordon, Josh, 2021. "Land as airspace: How rezoning privatizes public space (and why governments should not give it away for free)," OSF Preprints v89fg, Center for Open Science.
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    20. Gabbe, C.J. & Kevane, Michael & Sundstrom, William A., 2021. "The effects of an “urban village” planning and zoning strategy in San Jose, California," Regional Science and Urban Economics, Elsevier, vol. 88(C).
    21. Trent Saunders & Peter Tulip, 2019. "A Model of the Australian Housing Market," RBA Research Discussion Papers rdp2019-01, Reserve Bank of Australia.

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    More about this item

    Keywords

    housing; housing prices; land prices; zoning; land use;
    All these keywords.

    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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