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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
    as

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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

    as
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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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