A New Perspective on the Effects of Regulation and Public Investment
Open AccessThis dissertation consists of three essays providing insight on the effects of regulation and investment by government planners on the housing market. The first chapter discusses urban land use restrictions and building control regulations. The planner imposes non-constant FAR restriction, inverting the normal relation between housing density and distance from the city center. The theoretical model tests the applicability of the Standard Urban Model (SUM) under stringent planning restrictions. This result is empirically validated by a negative exponential house price function. In addition, the numerical analysis creates a counterfactual experiment to demonstrate what laissez faire development would look like in the absence of controls. Another contribution of this chapter is to compute the welfare implications of controls by comparing the actual city with the counterfactual city. The welfare loss due to planning is estimated at 2.05% of disposable income per year with an increase in city the limit of 23.1%. The increase in city limit shows how counterproductive FAR restriction is, and that it results in increased fiscal burden.Another example of planner's influence on the housing market is through provision of public infrastructure. The second chapter introduces a model to show the relation between urban infrastructure differential within a city and housing supply. Traditional theory suggests increasing housing density in the outskirts of a city is due to increasing income levels. However, the model predicts that newer planned developments, that are often located in the outskirts of a city, provide better urban infrastructure, and increase housing services, encouraging residents to live away from the center of the city. The empirical estimation finds that planned developments produce more urban infrastructure than the unplanned developments, which results in a 49.7% increase in the provision of housing services over the unplanned communities. The last chapter examines the role of public investment in a transit system and the associated effects on the housing market. House price capitalization of transit systems have been studied vastly in the literature. However, the analysis presented in this chapter allows the house price effect of proximity to transit to vary with distance from the center. Similarly, change in the house price gradient with distance from the center reflects the change in the transportation cost advantage and the resulting house price premium. The empirical section tests the theoretical predictions of changes in the spatial distribution of housing prices around a transit station, as the transit station is located farther away from the center of the city. Presumably these house price effects reflect the increasing catchment areas of more distant stations.
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