Evaluating the long-run effects of zoning reform on urban development

This paper presents a framework for assessing the long-run effects of zoning reform on urban development, housing supply, and dwelling prices. We begin by developing a version of the monocentric model that features regulatory restrictions on the capital intensity of housing that vary between different residential zones. A key implication of the model is that differences in land price gradients between zones reflect differences in equilibrium floorspace. This facilitates empirical estimation of the anticipated supply response to zoning reform through the measurement of changes in land price differentials after policy announcement. We use the framework to evaluate a recently implemented reform in Auckland, New Zealand, finding that changes in land price gradients in upzoned areas compared to non-upzoned areas are consistent with an approximate 23.7% increase in floorspace. Using plausible estimates of long-run house price elasticities of demand from the extant literature, this supply increase implies that dwelling prices would be 15.1 to 26.9% higher under the counterfactual of no upzoning. • Develops a theoretical framework for assessing effect of zoning reform on urban development. • Applies method to evaluate a widespread zoning reform in Auckland, New Zealand. • Upzoning generated an approximate 24% increase in long-run floorspace supply. • Supply generates a 15 to 27% fall in house prices under plausible range of demand elasticities.