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Land-Use Regulations, Property Values, and Rents: Decomposing the Effects of the California Coastal Act

Christopher Severen and Andrew Plantinga
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Andrew Plantinga: University of California, Santa Barrbara

No 17-33, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: REVISED MARCH 2018 Land-use regulations can lower real estate prices by imposing costs on property owners, but may raise prices by restricting supply and generating amenities. We study the effects of the California Coastal Act, one of the nation’s most stringent land-use regulations, on prices and rents for multifamily housing units. The Coastal Act applies to a narrow section of the California coast, allowing us to compare properties on either side of the jurisdictional boundary. The Coastal Act offers several advantages for measuring the effects of land-use regulations, including plausible exogeneity of the boundary location, which we confirm using historical data on boundary placement, and orthogonality of the boundary to other jurisdictional divisions. Extending previous studies, we decompose the effects of the regulation into a local effect, the net price effect of restrictions on the subject property and its immediate neighbors, and an external effect, the value of amenities generated by restrictions on all properties within the regulated area. Data on multifamily housing rents are used to isolate the effect of restrictions on adjacent properties (the neighbor effect). Our analysis of multifamily housing prices reveals local and external effects of approximately +8% and +5%, respectively. The rent analysis indicates a zero neighbor effect, which suggests that the local benefits of the Coastal Act have not yet materialized but are expected to in the future. This interpretation of our results is supported by additional evidence on building ages and assessed building and land values.

Keywords: land use regulation; housing prices; California Coastal Commission (search for similar items in EconPapers)
JEL-codes: Q24 R14 R31 R38 R52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-geo and nep-ure
Date: 2017-10-05, Revised 2018-03-21
Note: Revised March 2018
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