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 firms
b) 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
$ $ SL
Business Bid Rent

Residential Bid Rent

wo

RA
DL
u No N
Urban Service Boundary
• Suppose that the City refuses to Extend Urban
Services beyond X miles from city center
SL’
$ $ SL

w1
wo

RA
DL
X u N1 No N
Urban Service Boundary (Cont)

• As the wages rise, due to

$ the negative shock of
labor demand:
a) the business bid rent
function shifts to left
RA
b) the residential bid rent
X u function shifts to the
right
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:
S’
$ S $ S

P2

P0

P1
D D

H0 H H1 H
Building Permits (Cont)
• Why have the costs of
building a house decreased?
• How should the City should
S’
allocate the permits: $ S
– H1 Permits to be allocated
P2
– Value: H1*(P2-P1)
– City must assign permits
to the projects that
promote their P1
Development Strategy or D
by auction? H1 H
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)