Estimating the Economic Value of Zoning Reform
We develop a framework to estimate the economic value of a recent zoning reform in the city of Sao Paulo, which altered maximum permitted construction at the city-block level. Using a spatial regression discontinuity design, we find that developers file for more multi-family construction permits in blocks with higher allowable densities. We incorporate these micro-estimates into an equilibrium model of housing supply and demand to estimate the long term impact of zoning changes. Supply responses from the reform produce a 2.2 percent increase in the total housing stock, leading to a 0.5% reduction in prices on average, with substantial heterogeneity across neighborhoods. Consumer welfare gains due to price reductions are small, but increase 4-fold once we account for changes in the built environment, with more gains accruing to college-educated and higher income households. However, nominal house price losses faced by existing homeowners and landlords overshadow all consumer welfare gains.
We are grateful for support from the Wharton Dean’s Research Fund, and the Research Sponsors Program of the Zell/Lurie Real Estate Center. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Jonah M. Rexer
Nothing to disclose.