Land Use Regulation, the Redevelopment Premium and House Prices
Ryan Greenaway-McGrevy (),
Gail Pacheco () and
Kade Sorensen ()
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Ryan Greenaway-McGrevy: Centre for Applied Research in Economics, Department of Economics, University of Auckland
Gail Pacheco: NZ Work REsearch Institute, Faculty of Business, Economics and Law, Auckland University of Technology
Kade Sorensen: Department of Economics, University of Auckland
No 2018-02, Working Papers from Auckland University of Technology, Department of Economics
The option to redevelop a residential property can carry a significant positive premium. Although the existing literature has examined how this redevelopment premium is affected by the inherent characteristics of a property, comparatively little research has focussed on how land use regulations (LURs) interact with these characteristics to affect property values. In this paper we study the effect of upzoning (i.e., a relaxation of restrictions on residential density) on property values using a rich dataset of residential sales transactions. To study the effects of this policy change, we embed a difference-in-differences structure within a hedonic pricing function, wherein the upzoning quasi-treatment is interacted with a commonly-used empirical proxy for the opportunity cost of redevelopment - site intensity (i.e., the ratio of improved value to the total value of the property). We find that upzoning signifcantly increased the redevelopment option and inflated the price of under-developed properties. But we also find that upzoning deflated the price of properties that were already intensively developed, suggesting that the increase in the redevelopment option was offset by concurrent effects of upzoning, such as disamenities from increased population density.
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