Analyzing building-height restrictions: predicted impacts and welfare costs

This paper analyzes the impacts and the welfare costs of building-height restrictions. The theoretical analysis demonstrates that a height restriction causes a city to expand spatially, a consequence of lower densities near the center. The analysis also establishes that the consumer welfare cost generated by the height restriction can be measured by the increase in commuting cost for the household living at the edge of the city. Simulation results for a stylized urban area show that this welfare cost is approximately 2% of household income. Illustrative calculations for Bangalore, India, where a height restriction is in force, suggest a similar welfare cost, which lies in the 1.5-4.5% range.