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Land Use Regulation, the Redevelopment Premium and House Prices

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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)

Abstract

The right 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 residential structure, comparatively little research has focussed on how land use regulations (LURs) interact with these characteristics to affect redevelopment premia. In this paper we study the effect of upzoning (i.e., a relaxation of restrictions on site development) on the redevelopment premium and house prices using a rich dataset of residential sales transactions. To study the effects of this policy intervention, 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-intensity (i.e., the ratio of improved value to the total value of the property). We find that upzoning significantly increases the redevelopment premium and generates a substantial increase in the price of underdeveloped properties relative to properties that were already intensively developed.

Suggested Citation

  • Ryan Greenaway-McGrevy & Gail Pacheco & Kade Sorensen, 2018. "Land Use Regulation, the Redevelopment Premium and House Prices," Working Papers 2018-02 JEL Classificatio, Auckland University of Technology, Department of Economics.
    • Handle: RePEc:aut:wpaper:201802
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    References listed on IDEAS

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    Cited by:

    1. Mario A. Fernandez & Shane L. Martin, 2020. "What’s so special about character?," Urban Studies, Urban Studies Journal Limited, vol. 57(16), pages 3236-3251, December.

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