An Examination of the Link between Urban Planning Policies and the High Cost of Housing and Labor

September 2018

Anthony Yezer, William Larson, Weihua Zhao 

IIEP Working Paper 2018-6

Abstract: Past research has established positive empirical relation between city-level land use regulations and housing costs. One interpretation of these findings is that building restrictions raise the cost of producing housing. Alternatively, these price effects could reflect greater willingness to pay for quality urban design. Disentangling and identifying cost versus amenity factors empirically is an unresolved challenge. This paper presents an alternative to empirical tests, relying instead on the predictions of neoclassical urban theory. Simulations of an open city model demonstrate that theoretical predictions differ substantially from those obtained from empirical testing in two main ways. First, restrictions on land use and housing density influence the price level but not the elasticity of housing supply. Second, the effects of land use restrictions on average house prices are ambiguous and depend on the precise location of the planning restriction. Furthermore, the model generates direct estimates of effects on wages and demonstrates that transportation impediments are more consequential for housing prices than land use restrictions. This indicates a potentially fruitful path for future empirical work, and the possibility of omitted variable bias if transportation impediments are correlated with land use regulation.

JEL Codes: R30, R31, R38

Keywords: monocentric city model, price gradient, zoning, standard urban model

Can Differences Deceive? The Case of “Foreclosure Externalities”

July 2017

Anthony Yezer and Yishen Liu

IIEP Working Paper 2017-29

Abstract: Foreclosure externalities, in which recent foreclosures proximate to a housing unit depress its sales price, are well accepted in the literature. These papers use a geographic differencing strategy to eliminate the problem of selection into treatment. They also assume that the partial and total derivatives of the outcome (house value) with respect to the treatment (foreclosure) are constant and equal. This paper relaxes these assumptions producing very different results. These findings likely generalize to a larger body of research where differencing often in the form of regression discontinuity, propensity score matching, or synthetic controls is used to achieve identification while assuming total and partial derivatives of the outcome with respect to the treatment are constant and equal.

JEL: R23, R30, R31.

Keywords: Foreclosure; Specification error; Loan-to-value ratio; Externalities.

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