DP9206 | On the Origins of Land Use Regulations: Theory and Evidence from US Metro Areas

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We model residential land use constraints as the outcome of a political economy game between owners of developed and owners of undeveloped land. Land use constraints benefit the former group via increasing property prices but hurt the latter via increasing development costs. In this setting, more desirable locations are more developed and, as a consequence of political economy forces, more regulated. These predictions are consistent with the patterns we uncover at the US metropolitan area level.