Abstract

This paper compares the level and distribution of the welfare changes from restricting
land available for residential development in a city. We compare the economic costs
when residential capital is durable with the costs when capital is perfectly malleable and
those when population is also freely mobile. Our simulation, based on the stylized
specification of an urban location model, suggests that in a more realistic setting with
durable capital, the costs of regulation are substantially higher than they are when capital
is assumed to be malleable or when households are assumed to be fully mobile.
Importantly, the extent of wealth redistribution attributable to these regulations is much
larger when these more realistic factors are recognized. When capital is durable, the
results also imply that far more new development takes place on previously undeveloped
land at the urban boundary, sometimes resulting in an increase in land under
development.