Town mouse and country mouse: Effects of urban growth controls on equilibrium sorting and land prices

Urban growth controls can preserve open space and other amenities, but may come at the expense of higher land and housing prices. Previous studies quantify the benefits and costs of land-use regulations by comparing properties subject to differing degrees of regulatory intensity. A separate, but related, issue is how housing and land markets will evolve over time when a set of regulations remains in place. We examine how the value of developed land changes over time in cities that have adopted urban growth boundaries (UGBs). We present a theoretical model that combines equilibrium sorting, spatially-varying amenities, and urban growth controls. The model is used to examine how prices for developed lands inside and outside the UGB change with growth in the city's population. The UGB is shown to increase relative prices of exurban lands outside the UGB if new residents prefer the amenities in this area. The UGB also affects relative prices by influencing the quality of developed lands. We use a parcel-level panel data set on developed land values to quantify the scarcity and quality effects of UGBs in Oregon. Our results suggest that, overall, UGBs have prevented the development of exurban lands that residents would have preferred over lands closer to the urban center.