Do land prices rise when zoning rules are loosened, “capturing” any savings created by economies of scale and not stimulating development?
I’ve been thinking about this for a while and would love some expert thoughts—I can’t quite find resources addressing this specifically.
I’m particularly thinking in hot real estate markets (like my native Canada), and in cases where zoning changes happen in individual cities, towns, or even just neighbourhoods, with the rules outside that jurisdiction held constant.
Weakening zoning rules to allow greater density (or reducing development charges, or design requirements, etc) either provide direct savings to builders or allow greater economies of scale, spreading the land cost across more units.
But when these changes are put in place, if the builders don’t already own the land, wouldn’t landowners factor in that higher expected value of development when setting the prices they demand, resulting in the same economies as before the regulation change for the builders and ultimately for the homebuyers (especially since this is only a small number of parcels that could be developed within the larger unchanged regional market)?
Is there any way to correct for this, short of land value tax models (which I like but aren’t coming to Canada anytime soon)?