Zoning and the Density of Urban Development

The authors build a quantitative general equilibrium model of residence and employment choices under municipal density limits. Developers decide where to build, businesses decide where to offer jobs, and workers decide where to live and work given exogenous location characteristics, transport infrastructure, and zoning restrictions. The authors use employment, real estate, and commuting data to identify effective density restrictions for 3,917 Census tracts in the Los Angeles metropolitan area. The authors then compute two counterfactual scenarios. In the first, zoning restrictions on density are relaxed to the level of downtown L.A. in all urban tracts. In the second, massive improvements to transport infrastructure eliminate congestion-related delays. Each change yields large welfare gains. The first scenario leads to larger increases in output and much larger decreases in real estate prices, while the second scenario brings larger reductions in average commuting time.