The Effects of Residential Zoning in U.S. Housing Markets

Abstract

This paper examines the effects of minimum lot area restrictions on housing prices, construction, and residential sorting in the United States. First, I develop a structural break detection algorithm to estimate neighborhood-level minimum lot areas nationwide and provide new evidence on the prevalence and restrictiveness of residential zoning. Second, I use a spatial discontinuity design to evaluate the impact of minimum lot area restrictions. I find that doubling the minimum lot area increases sales prices by 14 percent and rents by 6 percent and intensifies residential segregation. Third, I develop a model of housing demand and supply to estimate households’ preferences for neighborhood zoning stringency and regulatory costs in housing construction. I find that white households have strong preferences for strict zoning in their neighborhoods. I use the estimated model to evaluate a counterfactual zoning reform that halves minimum lot areas in Connecticut. The reform would substantially increase the supply of small and cheap homes and benefit racial minorities, while minimally affecting existing home values.