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The Effect of Zoning on Housing Prices

Ross Kendall and Peter Tulip
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Ross Kendall: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: Zoning regulations provide benefits, but they also restrict housing supply and hence raise prices. This paper quantifies their importance by comparing prices to the marginal costs of supply at different points in time. For detached houses, marginal costs comprise the dwelling structure and the land that other home owners need to forego. Relative to our estimates of these costs, we find that, as of 2016, zoning raised detached house prices 73 per cent above marginal costs in Sydney, 69 per cent in Melbourne, 42 per cent in Brisbane and 54 per cent in Perth. Zoning has also raised the price of apartments well above the marginal cost of supply, especially in Sydney. We emphasise that this is not the amount that housing prices would fall in the absence of zoning. The effect of zoning has increased dramatically over the past two decades, likely due to existing restrictions binding more tightly as demand has risen.

Keywords: housing; housing prices; land prices; zoning; land use (search for similar items in EconPapers)
JEL-codes: R31 R52 (search for similar items in EconPapers)
Date: 2018-03
New Economics Papers: this item is included in nep-ure
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