11_Land use and housing regulation Flashcards
What is zoning, and why is it used?
Zoning is a type of land use regulation that local governments use to designate allowable land uses for a plot of land. It controls externalities that might affect public health, safety, and welfare.
What are the three general types of zoning?
- Use/Nuisance Zoning – Separates land use types (residential, commercial, industrial).
- Fiscal Zoning – Prevents land uses that may impose a fiscal burden on the community.
- Characteristics Zoning – Regulates specific property features (e.g., height restrictions, lot size).
What is the purpose of use zoning?
Use zoning separates land based on its function (e.g., industrial, residential, commercial) to reduce negative externalities such as pollution or congestion.
What is fiscal zoning, and what restrictions are often used in suburban communities?
Fiscal zoning prevents land uses that could create a financial burden on the community. Suburban communities may impose:
- Minimum lot sizes
- Height restrictions
- Bans on multifamily housing
How does fiscal zoning impact land and housing prices?
At the parcel level, zoning restrictions reduce land prices by limiting developer flexibility. At the housing market level, zoning raises housing prices by restricting supply. At the regional level, land prices may increase due to limited housing supply.
Who benefits from fiscal zoning?
Existing homeowners benefit as housing values rise due to restricted supply. Losers include potential residents, renters, developers, and neighboring communities.
What is exclusionary zoning?
Exclusionary zoning uses land use rules to restrict housing development in ways that limit access for lower-income residents, often reinforcing socio-economic divisions.
What are FAR and BCR in land use regulations?
Floor Area Ratio (FAR): The ratio of a building’s total floor area to the size of the land it is built on.
Building Coverage Ratio (BCR): The percentage of land covered by buildings.
How does land rent change with distance from the Central Business District (CBD)?
Land rent typically decreases with distance from the CBD, as demand for central locations is higher.
What are some ways local communities influence land use beyond zoning?
- Multi-agency approval processes
- Community board veto power
- City council development reviews
- Impact fees
- Lengthy re-zoning and permitting processes
What is the focus of Glaeser & Gyourko (2018)?
They analyze three urban housing markets (Detroit, Atlanta, and San Francisco) to understand different typologies of urban housing markets.
What characterizes Detroit’s housing market according to Glaeser & Gyourko (2018)?
Prices have been below the minimum profitable housing production cost for long periods.
The market exhibits a kinked supply curve.
It is indicative of a declining market.
What does the kinked supply curve in Detroit represent?
It suggests that once demand drops below a critical level, housing prices fail to rise above the minimum profitable production cost (MPPC), preventing new development.
What does the data on annual building permits and house prices in Detroit indicate?
Building permits have been consistently low, reflecting limited new development.
House prices remain below MPPC, deterring new housing supply.
Market stagnation with little recovery in housing investment.
What does this diagram illustrate about declining housing markets?
The diagram shows the relationship between housing price (PH) and housing quantity (QH) with supply (S) and demand (D1, D2) curves.
P = MPPC (Minimum Profitable Production Cost)* represents the price threshold below which new housing production is not viable.
Demand shifts from D1 to D2 indicate a market decline, reducing equilibrium quantity Q*.
When PH falls below MPPC, no new housing is built, reinforcing market stagnation.
This is common in declining cities like Detroit, where housing demand declines, leading to a permanent drop in construction activity.
What makes Atlanta’s housing market unique according to Glaeser & Gyourko (2018)?
Atlanta’s housing market is highly elastic, meaning new housing supply can quickly respond to demand. Demand is strong enough to always intersect the supply schedule beyond the kink, keeping prices near the minimum profitable production cost. Unlike Detroit, Atlanta has experienced steady growth over the past 25 years. Housing prices in Atlanta remain relatively reasonable due to its elastic supply.
How does Atlanta’s housing market differ from Detroit’s?
Detroit: Demand is weak, often falling below the minimum profitable production cost (MPPC), leading to stagnation. Atlanta: Demand consistently intersects the supply curve above the kink, ensuring continued growth and new housing development. Detroit exhibits a declining market, whereas Atlanta is an example of a growing, elastically supplied market.
What does the Atlanta housing permit graph illustrate?
Steady or rising annual building permit levels indicate continuous housing development. House prices remain close to MPPC, showing that supply efficiently meets demand. The contrast with Detroit highlights Atlanta’s flexibility in expanding housing stock and maintaining affordability.
What does a kinked supply curve in the housing market represent?
A kinked supply curve represents a market where housing supply is highly elastic beyond a certain point but inelastic at lower quantities. This often happens in cities with restrictive zoning or geographic constraints, causing prices to rise significantly when demand increases.
Why is housing supply in San Francisco considered inelastic?
San Francisco has high demand but little growth in housing stock due to:
- High levels of regulation
- Geographic constraints (hills, earthquake codes)
- Expensive construction costs
This results in a steeply sloped or kinked supply curve, causing significant price increases when demand rises.
What is the relationship between housing prices and supply in San Francisco?
Housing prices in San Francisco are well above the minimum profitable production cost due to inelastic supply. Limited new construction leads to high price volatility, as shown in the rising house price trends compared to low levels of new permits.
How does San Francisco’s housing market differ from Atlanta’s?
San Francisco: Inelastic supply, high prices due to regulation and geographic limits, and limited new construction.
Atlanta: Highly elastic supply, steady housing production, and prices remain close to the minimum profitable production cost.
What are the three housing market typologies identified by Glaeser & Gyourko (2018)?
Detroit → Declining Market
Atlanta → Growing Market, Elastically-supplied
San Francisco → Growing Market, Inelastically-supplied
Why are housing regulations important?
Higher housing prices
Capital share of GDP growing over time (labor share falling)
Up to 40% of the capital share increase is from housing
How do rising housing prices impact different generations?
Homeowners are hedged against rising housing costs.
Renters bear the cost, making them poorer in real terms.
Older households tend to own homes.
Younger households tend to rent.
How do housing regulations deter workers from moving to productive cities?
Hsieh & Moretti (2018) found that reducing housing supply regulation in cities like New York, San Francisco, and San Jose could lead to a 9% increase in aggregate GDP.
What does the kinked supply curve in the Detroit housing market represent?
The kinked supply curve represents the durability of housing in declining urban markets like Detroit.
Housing supply remains inelastic below the Minimum Profitable Construction Cost (MPCC) because developers are unwilling to build new housing when prices are too low.
When demand decreases, prices fall below MPCC, leading to a surplus of housing rather than a supply response.
Key takeaways from Detroit’s market:
Prices stay below construction costs for long periods.
The market exhibits low new housing development despite price fluctuations.
It indicates a declining urban market where housing supply does not adjust smoothly to demand changes.
leftover principal =
land rent = revenue - non land costs
