On the political economy of zoning

Households choose a community in a metropolitan area and collectively set a minimum housing quality and a property tax to finance a local public good. The collective imposition of a lower bound on housing consumption induces an income-stratified equilibrium in a specification where meaningful community differentiation would not arise without zoning. We show computationally that zoning restrictions are likely to be stringent, with a majority facing a binding constraint in communities that permit it. By inducing a stratified equilibrium, zoning causes Tiebout-welfare gains in aggregate but with large welfare transfers. Relative to stratified equilibrium without zoning, the zoning equilibrium is significantly more efficient as it reduces housing-market distortions.