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Literature Survey: Education Finances and Segregation by Haisi Liu

A fascinating, age-old U.S. public policy question surrounds the relationship between educational outcomes and segregation (e.g., income, racial). Over the years, growing economic literature continues to add nuanced perspectives to the issue of the interaction between school finances and the makeup of local communities. Social science researchers emphasize the importance of studying residential segregation, whether by income or race-ethnic groups, because of potential neighborhood effects on the long run educational outlook for young students. Since public education in the U.S. is largely financed by local property taxes, there is a large disparity between funding for schools in different communities.

Thomas Nechyba, “School finance, spatial income segregation, and the nature of communities”:

Although many education policy workers focus almost solely on the impacts of disparate per pupil expenditures across schools, a large body of economic research shows strong evidence that there are broader factors affecting educational inequities, and vice versa. For instance, since public school systems are based in local districts, residential segregation by income is more likely to occur—and over time this greater residential segregation feeds even larger inequalities, thus leading to a relentless cycle. Differences in education quality are capitalized into housing prices (i.e., property values often further decline in poor areas with inadequate schools).

Nechyba (2003) questions why the contemporary educational inequalities discussion is so restricted to per pupil spending gaps; rather, he calls for a more general examination of different school finance institutions and their various equilibrium effects. Thus, the paper sets up a structural model representing a decentralized economy in which households select their place of residence, where to send kids for education, and the degree of support to provide public schools; the model includes the most causal potential factors leading to income segregation.[1] Using observations from New Jersey districts, Nechyba (2003) adjusts the underlying structural parameters until his model simulates realistic features from the data. Then, holding these parameters constant, policy simulations can be conducted. The framework accounts for a couple main sources of residential segregation by income: 1) different neighborhoods are historically endowed with disparate housing quality and neighborhood characteristics; 2) places of residence affect a child’s school quality since public education systems require households to live within exogenously outlined boundaries. However, the inclusion of private schools into this model complicates matters because households that send their children to private educations care less about public school quality near their homes; alternatively, they would be even motivated to live in a subpar public school district with lower housing costs. Since private school households are often wealthier, this counterintuitive phenomenon pushes the local economy toward income desegregation.[2]

Subsequently, Nechyba (2003) use the structural model to find that state financing of school districts indeed dampens residential income segregation in an area. [3] This effect is expected because school systems that are purely locally financed give wealthier households motivation to segregate by income and thus shape better schools. However, two less intuitive findings are that the existence of a private school market leads to considerable residential income desegregation, and that in the presence of private schools, the existence of public schools actually tends to lower residential segregation—even though, by themselves, public school systems are associated with higher spatial segregation. However, a notable caveat to this study is that the model equilibrium overestimates the movement of private school households into poorer neighborhoods simply because the structural model does not account for non-school characteristics of such communities.

Raquel Fernandez and Richard Rogerson, “Keeping people out: income distribution, zoning, and the quality of public education”:

Meanwhile, Fernandez and Rogerson (1993) investigate the effects of community zoning regulations on per pupil spending, particularly with respect to property taxes and the formation of communities with average income differences. The analysis relies on simulations using a two-community model, where each community determines tax rates by majority vote, and households can choose their place of residence. Without zoning, the equilibrium of this model results in a poor neighborhood with a low tax rate (i.e., low per pupil expenditure) and a wealthier community with a higher tax rate.[4] The study found that the existence of zoning regulations, meaning that households have to purchase a minimum level of housing in order to live in a predetermined area, is associated with the wealthy community decreasing in size and becoming richer, while the poorer neighborhood grows larger. The increased exclusivity of the rich neighborhood causes the lowest income households of that neighborhood to enter a poorer one, thus raising average income in both areas.[5] As a result, the poorer community sees greater per pupil spending, but the change in education quality across the two areas is ambiguous.

Sarah Reber, “School desegregation and educational attainment for blacks”:

Although the first two studies mentioned did not delve into racial segregation, it is important to gauge the relationship between segregation and educational attainment for certain race-ethnic groups. Reber (2007) looks into the effects of the desegregation process after the Supreme Court’s 1954 Brown v. Board of Education decision, specifically focusing on schools in Louisiana. Previous studies showed that the desegregation policy had two effects: 1) increasing black students’ exposure to white peers in school and 2) raising the level of federal and state funding such that the average spending in predominantly black schools increased. Given that desegregation essentially eliminated disparities in student-teacher ratios for black and white students within previously segregated districts, Reber (2007) sought to determine whether greater educational attainment by blacks following desegregation resulted more from greater exposure to white peers or increased funding.[6]

The simplest specification in this paper is a univariate regression that looks for an association between a county’s initial share of black enrollment and change in educational attainment from before and after desegregation; in this model, the dependent variable of interest is mean attainment for 1970-1975, minus the average attainment for 1960-1965. Later, the paper considers metrics such as the 12th grade continuation rate and adds controls for other characteristics such as change in county’s employment. These regressions on high school grade continuation and graduation rates indicate that greater educational attainment increased more for black students in districts with higher rates of black enrollment following desegregation—thus implying that, following desegregation, increased funding played a larger role than higher exposure to white students in raising attainment.[7]

Summary

Growing literature contribute to U.S. policies designed to match educational opportunities of students coming from vastly different racial and socio-economic backgrounds. Whether through investigating the means by which certain communities are able to make use of taxes and zoning as instruments to keep specific segments of the population out of a school district, or by evaluating the effect of private schooling on income segregation, valuable insights can be drawn from these types of analyses. A thorough look at the institutional set-up of education can reveal the role that segregation and various school finance mechanisms play in long-run inequality.


References

Raquel Fernandez and Richard Rogerson, 1997, “Keeping people out: income distribution, zoning, and the quality of public education,” International Economic Review 38(1): 23-42.

Sarah Reber, 2007, “School desegregation and educational attainment for blacks,” Cambridge, MA: NBER working paper 13193.

Thomas Nechyba, 2003. “School Finance, Spatial Income Segregation and the Nature of Communities,” Journal of Urban Economics 54(1), 61-88, July.


[1] Thomas Nechyba, School finance, spatial income segregation, and the nature of communities, 66: It is notable that although this analysis focuses on income segregation, it can apply to problems involving racial segregation as well, “only to the extent that such segregation is driven by income differences.”

[2] Nechyba, 65

[3] Nechyba, 74: “While it might be expected that state financing will lead to less segregation than local financing, the relatively small magnitude of this effect compared to the huge effect of private schools is surprising, as is the different effect of public schools in a world with and without private school markets.”

[4] Raquel Fernandez and Richard Rogerson, “Keeping people out: Income distribution, zoning, and the quality of public education,” 1

[5] Fernandez and Rogerson, 32

[6] Sarah J. Reber, “School desegregation and educational attainment for blacks,” 3

[7] Reber, 6: To prevent white flight, schools with larger proportions of black students received more funding to “level up to the levels previously experienced only in the white schools”

Rezoning and Development: The 751 South Project in Durham, NC

By Stephanie Xu  DP_XuStephanie

Introduction

A key debate during North Carolina’s 2012 election cycle revolved around the proposed development of 164 acres in southwest Durham County, an area now widely referred to as 751 South.  The development called into question zoning practices and decisions, as the Durham Planning Commission finally approved 751 South to be rezoned from its former Rural Residential designation to a Low-Medium Density Residential designation.  Yet even as Southern Durham Development (SDD), the company spearheading the project, moves forward with its plans, environmental activists and local community leaders have spoken up against the development, citing an irreversible environmental impact, including damage to Jordan Lake and its aquifer.

Amidst the political debate, this paper seeks to examine whether or not the 751 development will be beneficial to Durham using economic analyses.  We first review the origins of zoning policies to gain a better understanding of the sensitivity of rezoning.  Then, we look more deeply into 751 South and the research that has been conducted about the project, including an independent economic impact analysis and a cost-benefit analysis by Durham County.  From the data available, 751 South is a viable and necessary development that will bring a great deal of benefits to Durham County, ranging from job creation to privately-funded highway improvements.

Literature Review

The practice of zoning as a method of urban planning and land use regulation has been surrounded by equity and segregation debates over the past few decades.  A wide body of literature about the topic exists, with a range of focuses, from its early implementation in the early 1900s to its efficiency to its effect upon race and class segregation.  This paper examines the history and progression of zoning practices and policies, as they are crucial to understanding the associated controversies.  We then look into the impact of zoning upon income distribution and equity, first through a more dated but resourceful paper by Fernandez and Rogerson (1997), and then through a 2006 paper by Calabrese, Epple, and Romano.  Lastly, we explore literature concerning the relationship between zoning laws and public health initiatives.

Fischel (2004) offered a comprehensive overview of zoning from its early 1900s origins to modern day policy reforms to address the exclusionary products of such regulations.  Fischel posited that zoning was not a necessary practice until the advent of buses and trucks that allowed businesses to locate farther from streetcar tracks and stations.  Until then, workers were able to buy houses in the suburbs without fear of encroaching business.  However, companies’ newfound capability to transport resources threatened the residential environment that workers found so valuable.  Thus, zoning was the only way to give homeowners security and assurance that their neighboring land wouldn’t become a noisy business district.  Several decades later, the problem was exacerbated by a sudden increase in highway construction in the 1960s.  Firms could now move out of high-density urban areas even more easily.  Failing or struggling cities and suburbs welcomed the influx of businesses for the accompanying fiscal benefits.  Meanwhile, only well-off communities could afford to keep businesses out.  Fischel argued that it was in this environment that income distribution began to play such a strong role.  In this paper, he sought to find a way to keep home values stable, as zoning was initially created to accomplish, without causing the exclusion with which we are faced today.  To resolve this, he proposed selective home equity insurance, despite his acknowledgement of the administrative problems and risks of moral hazard and adverse selection.

Fernandez and Rogerson (1997) and Calabrese et al. (2006) investigated the impact of zoning upon equity, but differed in their approaches in a critical way.  Both used a two-community model with two different income distributions.  Both also made a point of stratification as a natural occurrence, with or without zoning laws.  But the former required in their model that individuals committed to one community or another before any voting took place, and before they bought any property.  Calabrese et al., on the other hand, based their argument upon the Tiebout rationale that people could “vote with their feet” and choose to reside in towns that align with their personal preferences.

Thus they arrived at different conclusions.  Fernandez and Rogerson found that in general, zoning made the richest better off and the poorest worse off, but left a great deal of ambiguity about those in the middle.  Poor individuals who moved from a more affluent community to a lesser one because of zoning policies tended to be better off, while individuals who move to a richer community tend to be worse off.  Calabrese et al. finds an overall increase in efficiency and welfare as a result of zoning, due to their assumptions under the Tiebout model.  They conclude that because residents can move after a community votes on tax rates and local public goods, “aggregate welfare gains arise from better Tiebout matching of preferences to levels of public-good provision” (Calabrese et al. 2006, 4).  Comparing these two scholarly works highlights a decisive factor in zoning theory: that the order in which individuals vote on taxes and public goods, buy property, and choose their community affects the predictions of the ensuing welfare gains or losses.

751 South: Background

Until July 2012, the 751 South region was designated as Rural Residential, which permits four or fewer units per acre of land.  Since the Durham Planning Commission approved the rezoning application by a vote of 8-5 in favor, 751 South is now a Low-Medium Density Residential area and is allowed anywhere from four to eight units per acre of land.

SDD’s plan for the development allocates 300,000 square feet to retail space, 300,000 square feet to office space, 645 apartments, 358 condominiums, 170 townhomes, and 107 single-family houses.  Their plan also includes a 26-acre donation to Durham to build a new elementary or middle school, a new fire department, and a new sheriff’s office.  Finally, SDD has committed to investing the full $6 million needed to improve Highway 751 to expand its capacity and relieve congestion in the area.

 

751 South: Economic Analysis

The economic impact of the 751 project come in two phases: the construction phase and the permanent operating phase.  Benefits, as outlined by the ERA Economic Impact Analysis, come in many forms, the most significant being in job creation and increased property and sales tax revenue.  Other benefits include SDD’s full funding of the highway renovations and planned donation of 26 acres of land for the purpose of constructing a new public school, and new sites for the fire and police departments.  In total, the value of these contributions exceeds $11.4 million, saving the expense of taxpayer money.  The costs that have been examined include the costs to construct, the cost to equip and staff new fire and police departments, and other operating costs of the new landscape.  Overall, without any reliable data on environmental costs, the benefits to developing the 751 South project exceed the costs by a tremendous amount.

Phase 1: Construction

This building phase of the 751 South project brings changes in three components: direct, indirect, and induced impacts.  Direct impacts refer to the initial changes in industries; indirect impacts refer to changes in inter-industry transactions as demand grows; and finally, induced impacts refer to changes in local spending that result from the changes in the industry sectors.  Intuitively, any development dollars spent and re-spent in Durham County will generate additional income for both companies and their employees as money circulates through a cycle of spending.  ERA acknowledges that there will be some leakages, so this multiplier effect will not be entirely contained within Durham County, but overall the benefits are significant.  Figure 1 breaks down the impacts into three construction phases over ten years, noting the three types of effects upon output, employment, and labor outcome.

Figure 1

DP_Xu-1

 

ERA has predicted that the direct $414.5 million investment in the project will bring an additional $107.4 million in indirect output and $44.5 million in induced output.  The project is also set to create an estimated 2,419 jobs purely for the development of the site as well as another 1,333 jobs in indirect and induced impacts.  In turn, the job creation results in an increase in labor income in Durham County totaling $166.9 million during the ten-year construction phase

Phase 2: Permanent Operations

The economic impact of the operating activities of retail, office, and consumer spenders is permanent and proves more substantial than the Phase 1 impacts.  The benefits can be broken down into jobs and income, household spending, and tax revenue.  First, using data from the American Planning Association, the new retail and office buildings will house 1,050 new professional office jobs and 683 new retail jobs.  Additionally, the new occupants who will occupy the housing at 751 South will create demand for 714 other jobs for a total of 2,980 new jobs at build-out with an estimated annual labor income of $154.2 million.  Figure 2 provides an exact breakdown of the predicted permanent jobs, which range from construction positions to legal personnel.

Figure 2

DP_Xu-2

Second, 751 South is predicted to house 1,280 new households with a total estimated disposable income of over $98.9 million that will contribute to the new industries and businesses in the area.

Finally, the new development is forecast to bring in about $5.7 million in annual property taxes to Durham and additional revenue in sales taxes.  Data based upon local experience and internal market research examined similar communities such as Colvard Farms and Meadowmont and yielded estimates of $3.2 million for Durham County with an additional $2.4 million for the city if the project area is annexed.

Conclusion

The two economic analyses provided suggest that development in full of SDD’s project for 751 South would be the appropriate policy decision, but fail to acknowledge any environmental impact research that may reduce the perceived benefits of the development.  The economic impact analysis by ERA explores the various benefits that will come from 751 South, ranging from sales and property tax revenues to thousands of permanent jobs to privately-donated land for Durham Public Schools, the Fire Department, and the Police Department.  The cost-benefit analysis by BMS demonstrates that full completion of SDD’s proposal would bring profits sooner than any alternative scenario.  Intuitively, completion of only 48.1% or 21.9% of the project yields slower returns and fewer returns for a lower investment.

The policy question comes down to a balance between environmental risks of developing 751 South and other needs that 751 South would help fulfill for Durham.  While maintaining the status quo would eliminate the environmental concerns, this option leaves Durham with many of its problems unsolved.  Overcrowding in Durham Public Schools will remain an issue, as will the traffic congestion along the 751 and NC-54-I-40 corridors.  While the existing economic studies have revealed a number of economic benefits that would accompany the 751 South project, there has yet to be conducted an official environmental impact assessment that would lend credence to the environmental objections to it.  Without such evidence, a fully informed policy choice cannot be formed.

 

References

Economic Research Associates. Project Report: 751 South Economic Impact Analysis,

Prepared for Southern Durham Development (March 29, 2009), www.era.aecom.com.

 

Budget and Management Services. Cost Benefit Report: 751 South Project Voluntary

Annexaction Petition (March 31, 2011), ww2.durhamnc.gov/annexation/751_Report/pdf/04.pdf.

 

 

From Homeowners’ Assurance to Public Policy: Origins and Modern Applications of Zoning

 by Stephanie Xu Xu_Stephanie_2013_Literature_review_revised

 

From Homeowners’ Assurance to Public Policy: Origins and Modern Applications of Zoning

 

The practice of zoning as a method of urban planning and land use regulation has been surrounded by equity and segregation debates over the past few decades.  A wide body of literature about the topic exists, with a range of focuses, from its early implementation in the early 1900s to its efficiency to its effect upon race and class segregation.  This paper examines the history and progression of zoning practices and policies, as they are crucial to understanding the associated controversies.  We then look into the impact of zoning upon income distribution and equity, first through a more dated but resourceful paper by Fernandez and Rogerson (1997), and then through a 2006 paper by Calabrese, Epple, and Romano.  Lastly, we explore literature concerning the relationship between zoning laws and public health initiatives.

 

Fischel (2004) offered a comprehensive overview of zoning from its early 1900s origins to modern day policy reforms to address the exclusionary products of such regulations.  Fischel posited that zoning was not a necessary practice until the advent of buses and trucks that allowed businesses to locate farther from streetcar tracks and stations.  Until then, workers were able to buy houses in the suburbs without fear of encroaching business.  However, companies’ newfound capability to transport resources threatened the residential environment that workers found so valuable.  Thus, zoning was the only way to give homeowners security and assurance that their neighboring land wouldn’t become a noisy business district.  Several decades later, the problem was exacerbated by a sudden increase in highway construction in the 1960s.  Firms could now move out of high-density urban areas even more easily.  Failing or struggling cities and suburbs welcomed the influx of businesses for the accompanying fiscal benefits.  Meanwhile, only well-off communities could afford to keep businesses out.  Fischel argued that it was in this environment that income distribution began to play such a strong role.  In this paper, he sought to find a way to keep home values stable, as zoning was initially created to accomplish, without causing the exclusion with which we are faced today.  To resolve this, he proposed selective home equity insurance, despite his acknowledgement of the administrative problems and risks of moral hazard and adverse selection.

Fernandez and Rogerson (1997) and Calabrese et al. (2006) investigated the impact of zoning upon equity, but differed in their approaches in a critical way.  Both used a two-community model with two different income distributions.  Both also made a point of stratification as a natural occurrence, with or without zoning laws.  But the former required in their model that individuals committed to one community or another before any voting took place, and before they bought any property.  Calabrese et al., on the other hand, based their argument upon the Tiebout rationale that people could “vote with their feet” and choose to reside in towns that align with their personal preferences.

 

Thus they arrived at different conclusions.  Fernandez and Rogerson found that in general, zoning made the richest better off and the poorest worse off, but left a great deal of ambiguity about those in the middle.  Poor individuals who move from a more affluent community to a lesser one because of zoning policies tend to be better off, while individuals who move to a richer community tend to be worse off.  Calabrese et al. finds an overall increase in efficiency and welfare as a result of zoning, due to their assumptions under the Tiebout model.  They conclude that because residents can move after a community votes on tax rates and local public goods, “aggregate welfare gains arise from better Tiebout matching of preferences to levels of public-good provision” (Calabrese et al. 2006, 4).  Comparing these two scholarly works highlights a decisive factor in zoning theory: that the order in which individuals vote on taxes and public goods, buy property, and choose their community affects the predictions of the ensuing welfare gains or losses.

 

Finally, we examine more recent literature relating zoning codes and public health solutions.  Ransom, Greiner, Kochtitzky, and Major (2011) define the “built environment” as anything man-made or man-modified, from buildings to highways, that act as sources of pollution (94).  They draw linkages between the built environment and health, and cite the disproportionate cases of obesity in densely-packed urban areas as a prime example.

 

It follows that zoning codes should take public health considerations into their analysis, as the City of Baltimore did in its 2008 TransForm Baltimore campaign (Public Health Work Group 2008).  The planners endeavored to create an environment that allowed people to be healthy through such measures as increasing green spaces, establishing more mixed-use space, and controlling the locations of fast food stores and liquor stores, especially relative to schools and residences.   However, Ransom et al. did identify a number of obstacles to pursuing such zoning policy reform.  First, the research and evidence to support these reforms is complex, both to accumulate and to transform into actionable policies, as the precise causal effects of certain zoning layouts upon health problems is difficult to determine due to confounding factors, such as population demographics, the types of businesses occupying retail and office space, etc.  In other words, the effects of zoning are difficult to isolate from other characteristics of a neighborhood or community.  Second, using zoning to address public health issues is politically difficult, especially when other priorities exist, such as improving walkability and access to healthy food (Ransom et al. 2011, 96).  Third, efforts such as the TransForm Baltimore initiative lacks input from a variety of community members and leaders, which prevents policymakers from fully comprehending the context.  Lastly and perhaps most importantly, business leaders and neighborhood housing associations are well-organized constituency groups that often oppose things such as mixed-use land, mixed-income housing, and reduced parking requirements.

 

The existing research addresses several arguments in favor of and against zoning, and the diversity of the literature opens many doors for further research.  In the case of Durham, North Carolina, it may be worthy to investigate the impact of Duke Hospital upon the surrounding residential neighborhoods and efforts to preserve a certain environment despite increased traffic.  A similar analysis may look into zoning designations in the Warehouse district downtown, and who made the decisions to make one set of warehouses into the American Tobacco District and another into the West Village apartments.  Durham, as a growing city, stands to see more conflicts in the coming years as businesses grow and residents face the potential intrusion that people feared a century ago.

 

 

 

References

 

Calabrese, Stephen, Dennis Epple, and Richard Romano.  “On the Political Economy of Zoning.”  July 2006.

 

Fernandez, Raquel and Richard Rogerson.  “Keeping People Out: Income Distribution, Zoning, and the Quality of Public Education.”  International Economic Review 38:1 (1997), pp. 23-42.

 

Fischel, William A.  “An Economic History of Zoning and a Cure for its Exclusionary Effects.”  Urban Studies 41:2 (2004), pp. 317-340.

 

Public Health Work Group, “Zoning Recommendations.”  Transform Baltimore, City of Baltimore, 17 November 2008.

 

Ransom, Montrece McNeill, Amelia Greiner, Chris Kochtitzky, and Kristin S. Major.  “Pursuing Health Equity: Zoning Codes and Public Health.”  Journal of Law, Medicine & Ethics (2011), pp. 94-97.

 

 

Literature Review

by Katerina Valtcheva Valtcheva_Katerina_RewrittenLiteratureSurvey

 

I am interested in exploring the efficiencies and inefficiencies of zoning and land use regulation in the U.S. To this end, I will briefly look at the history of zoning and some major events that shaped how it has been exercised. Then I will present the findings of several studies concerning the practice and examine where that leaves us today.

Growth control restrictions and zoning were originally developed as a way to prevent the development of industrial and commercial zones in proximity to residential areas. However, zoning was not largely employed across America until the Standard State Zoning Enabling Act of 1922 was enacted by the U.S. Department of Commerce. Since the adoption of the act, zoning became a widespread practice that has not been significantly affected even by adverse court rulings. As a result, local municipalities have the biggest say in when and where to employ regulations. Since governments have recognized the importance of property value maximization as one of their objectives, zoning has become a way to exclude lower income residents from communities. Theoretically, zoning and growth control restrictions imply that taxes paid for local services are in one to one correspondence with the demand for those services and ensure that no member of society gets services than they have not paid for. (Fishel 1992; Quigley and Rosenthal 2005)

In his paper on property value maximization, Brueckner (1983) builds on Tiebout’s broad idea of governments achieving efficiency in a community by maintaining its population subject to the minimum individual cost of public goods and services. Brueckner’s analysis of governments that engage in property value maximization while allowing for private land and property markets (the effects of this behavior on land rent and house size are ignored), proposes a more concrete application of Tiebout’s original idea.

Brueckner (1983) showed that communities are internally in Pareto-efficient equilibrium when their governments maximize the value of aggregate property by selecting their public good output provided that government revenue is collected by a per-house tax. If the same revenue is being collected with a distortionary tax, such as income tax, the same community will be internally efficient, but not internally Pareto-efficient (it is important to note that the paper did not clearly define an “efficient allocation” as clearly distinct from Pareto efficiency). However, this government strategy of value maximization cannot achieve a globally efficient equilibrium. The reason for this is that in the model the zero-profit utilities between communities will differ depending on the community population and its tastes. The Nash equilibrium of government behavior with respect to maximization of property value ensures the internal Pareto-efficiency mentioned prior; however, it does not always assign community consumers optimally, which leads to global inefficiency. Fischel (1992) runs into similar complications with regards to quantifying zoning efficiency in large areas. However, instead of lack of Pareto-efficiency, he argues that zoning is less effective in large cities rather than in suburbs and rural areas due to the heterogeneity of larger populations’ interests.

Bruckner suggests that a government-applied population control such as zoning could be the key to achieving global efficiency. The reasoning behind his statement is that such restrictions can make the population’s tastes more homogeneous by excluding lower income residents and thus increasing efficiency in communities where taxes are distortionary.  However, the effective introduction of zoning into the model is a problem that has yet to be solved and requires further research. One factor that must be taken into consideration is that studies of zoning and growth regulations have not yet yielded a unanimous and statistically significant proof of such practices’ effectiveness in all areas, or their consequences.

Fischel (1992) claims that even though studying zoning is a challenge given the abilities of governments to amend the laws due to new political environments, it is possible to extract broad conclusions, both because the laws governing the states are similar and because of the effects of the Standard State Zoning Enabling Act of 1922. However, Quigley and Rosenthal (2005) in their paper on the effects of land use regulation argue that the complex interrelationship between demand for housing, availability of public services and conditions for them makes the implementation of an optimal regulatory framework a daunting task for any municipality.

One difficulty that arises when examining the effects of zoning is that numerous purposes of land use and regulatory dimensions exist; however, this is not the only problem with past studies. Methodological problems with various studies include the virtual impossibility of extracting generalizations about large areas. One reason for this is given by differences in standards for measuring land oversight. Other reasons include scarcity of data or not accounting for the fact that regulation and prices are determined endogenously. Moreover, the studies are conducted irregularly, which makes it even more unlikely for a generalization between them to be drawn. (Quigley and Rosenthal, 2005)

Fischel (1992) claims that many studies show that “adoption of more restrictive zoning reduces the value of undeveloped suburban land subject to restrictions and increases the value of already-developed homes.” However, this does not unambiguously prove zoning laws’ effectiveness. Quigley and Rosenthal (2005) examine results from various studies in order to assess what conclusions can be drawn regarding the effectiveness of zoning. Several quoted studies largely failed to demonstrate the effectiveness of monopoly zoning on property values, until an analysis by Thorson (1996) showed promising results. Thorson analyzed reported median home values using more complex models, which included neighborhood and housing quality controls, where his concentration ratio turned out to be significantly related to increased home prices. Other studies restricted to certain areas in the U.S. concluded that zoning has little to no effect on property values. However, some of the later studies that address challenges in existing methodologies confirm the positive effects of zoning on property values. According to Quigley and Rosenthal, a lot of these articles show that regulations of land use raise the value of existing property, but diminish that of developed land, which is the same result at which Fischel arrived. However, Quigley and Rosenthal determine that the overall effect of density regulations on property values is ambiguous. They conclude that it is not possible to make any definite generalizations about the effect of zoning and land use restrictions onto property values, which contrasts with Fischel’s more optimistic view.

It seems that Pareto-efficient equilibrium can be achieved in various communities by the optimization of a public good and thus maximizing property value (Brueckner 1983). This finding provides a partial theoretical solution to one of the problems government have on their agendas, but further research must be done in order to reach a globally Pareto-efficient equilibrium. The way Brueckner proposes this issue to be solved is through the use of zoning. However, there are a lot of unsolved problems that need to be addressed before a global property-value-maximization model can be developed.

 

References:

Quigley, John, and Larry Rosenthal. “The Effects of Land Use Regulation on the Price of Housing: What Do We Know? What Can We Learn?.” Cityscape. 8.1 (2005): 69-137. Web. 7 Feb. 2013.

Fischel, William. “Property Taxation and the Tiebout Model: Evidence for the Benefit View From Zoning and Voting.” Journal of Economic Literature . 30.1 (1992): 171-177. Web. 7 Feb. 2013.

Brueckner, Jan. “Property Value Maximization and Public Sector Efficiency.” Journal of Urban Economics. 14. (1983): 1-15. Print.

Thorson, James. “An Examination of the Monopoly Zoning Hypothesis.” Land Economics. 72.1 (1996): 43-55. Web. 7 Feb. 2013.