Bombs, boundaries and buildings

Many cities apply planning policies to protect a valuable building stock. These policies may have adverse side-effects. We aim to estimate the costs of within-city regulatory restrictions for house owners. To avoid endogeneity issues with respect to supply restrictions, we employ a regression-discontinuity approach using a World War II bombing boundary within the city of Rotterdam. Conditional on amenities and housing attributes, in the bombed area (where fewer restrictions apply) house prices are about 10% higher. This implies regulatory costs of about 0.72millionEuroperhectare for the area under consideration. The results suggest that house owners' benefits should be substantial to compensate for the costs of additional restrictions.