Land Use Controls and Zoning

Chapter 10

Why do cities control land use?• Cities and government limit the

location choices of residents and firms

• Limit population growth to control:– Pollution– Congestion– Crime– Atmposphere

Goal of the Chapter

• Cities use land controls and zoning to:a) Limit location choices of households

and firmsb) Limit population growth

• In this chapter we address 3 questions:1)Why do cities control land use?2)What are the markets effects of land

use controls?3) What are the legal foundations of

zoning and other land use controls?

Controlling Population Growth

• Cities can limit population growth within a boundary by either using an Urban Growth Boundary or an Urban Service Boundary

u

$Business Bid Rent

Residential Bid Rent

RA

$

N

SL

DL

wo

No

Urban Service Boundary

• Suppose that the City refuses to Extend Urban Services beyond X miles from city center

u

$ $

N

SL

DL

wo

NoX

RA

SL’

N1

w1

Urban Service Boundary (Cont)

• As the wages rise, due to the negative shock of labor demand:a) the business bid rent function shifts to leftb) the residential bid rent function shifts to the right

u

$

X

RA

Who Gains and who Losses? Why?• People that own land in CBD?• People that own land in the

Residential District?• People who own land outside the

boundary line?• Business Firms?• Households?

Building Permits

• Cities may control residential growth by issuing building permits:

$

H

S

D

H0

P0

$

H

S

D

H1

P1

P2

S’

Building Permits (Cont)• Why have the costs of

building a house decreased?

• How should the City should allocate the permits:

– H1 Permits to be allocated

– Value: H1*(P2-P1)

– City must assign permits to the projects that promote their Development Strategy or by auction?

$

H

S

D

H1

P1

P2

S’

Land Use Zoning

• A zoning plan designates a set of admissible land uses for each plot of lands in the city.

• In theory zoning will promote health, welfare and safety by separating land of incompatible uses.

• Three types of zoning:– Nuisance Zoning– Fiscal Zoning– Design Zoning

Nuisance Zoning: Separate incompatible land uses

• Industrial Nuisance Zoning: Industries generate negative externalities, such as noise and air pollution.– Traditional Industrial Zoning: Exclusion from

zone, reduces amount of pollution(?) – Performance Industrial Zoning: Set limits to

quantity of pollutants, efficient(?)– Effluent taxes: Economically efficient

Marginal External Cost=Effluent Fee

– Spatial Effluent Fee→ Different taxes in different locations

What is more efficient?

• The Effluence Fee or Zoning?

Retail and Residential Nuisance Zoning• Retail Zoning: Retail areas generate

negative externalities such as traffic, noise, parking problems.– Traditional Retail Zoning: Zoning map that

classifies an area as retail zone. – Performance Retail Zoning: Set upper limits

for the amount of noise, odor, traffic, etc.• Residential Zoning: Residential externalities

generated mostly by high-density housing.– Conventional Zoning: Exclude the project– Performance Zoning: Actual effects on the

neighborhood.

Fiscal Zoning (Exclusionary Zoning)• A city excludes households that impose

fiscal burdens on the local government– High Density Housing:– Who wins and who looses from High

Density zoning? • Owners of apartment land? • Owners of single family housing land?• Apartments owners?• Single family owners?

• Households living in the fringe areas of the city

• New commercial and industrial development

The Tiebout Hypothesis

• The Tiebout hypothesis, which states that individuals will costlessly sort themselves across local communities according to their public good preferences, is the workhorse of the local public finance literature.

• Inclusionary Zoning: local developers have to build dwellings for low income households, mostly in the form of high density housings.

Design Zoning• Planner designs a city arranging

activities to promote the efficient use of the city’s infrastructure– Direct development– Transferable Development Rights

• Define a “Preservation Zone” and a “Development Zone”

• Give some TDR to the owner of the “Preservation Zone” land, and in turn these can be sold to people in the development zone for further development.

Open Space Zoning

• Should a city zone a parcel as open space and thus denying the landowner the use of her land?

• Should the city purchase the land for open space?

Evenson and Wheaton (2003)

• Why is this paper important?– Understand how do we organize spatially– Understand the role of government in

reducing negative externalities due to imperfect assignment of property rights

• Objective of the paper:– Present their dataset – establish a series of stylized facts about

how do cities zone

Evenson and Wheaton (2003) (Cont)• 4 stylized facts:

a) Existing density and developments are crucial determinants of zoned density and allowed development (market work)

b) Future commercial development is permitted in high-density/lower-income cities and towns

c) Wealthier town more likely to set protected land aside (income is related to the extent that town allow development at all)

d) No significant effect of town income on the density of future development (do not supports Tiebout Hypothesis)

Glasear, Gyourko and Saks (2003)

• Goal: Analyze the effects of zoning on prices in NYC

• Identification Strategy: Households buying apartments in NYC pay a Regulatory Tax that equals the difference between MC and MR(remember in perfect competition MR=MC)

Glasear, Gyourko and Saks (2003)• Main assumptions:

– Marginal cost is constant and accurately calculated

– Market is assumed to be in equilibrium (no demand effects)