On the effect of fiscal zoning on land and housing values

Abstract

The note is a comment on and extension of "The Effect of Zoning on Land Value," by J. C. Ohls, R. C. Weisberg, and M. J. White. It is suggested that some of the results of that paper are very sensitive to the way in which the market for urban housing and the market for urban land are modeled. In the context of a more general model, it is shown that a major result of that paper, that land values may rise or fall, in a metropolitan area, in response to zoning, still holds, although the mechanism underlying the process is very different in the more general model. Furthermore, it is shown that the effect of such a zoning change on housing prices and consumer welfare is unambiguous; the former rises and the latter falls. Finally, it is proved that zoning by a small municipality within a metropolitan area will cause land and housing values to fall.