Congestion Effects of Spatial Growth Restrictions: A Model and Empirical Analysis

The present study characterizes the congestion effect of spatially designated growth controls, such as greenbelt or urban growth boundaries. The developed model demonstrates that the congestion externality caused by a binding growth restriction can understate total welfare costs of the regulation but overstate the amount of welfare transfer from renters of urban land to landowners. This article also examines costs and benefits of different development options given a binding growth restriction, and shows that non-consideration of the congestion externality is likely to skew choice toward high-density development. To test the hypothesized regulatory effect, a pooled time-series and cross-sectional analysis is performed with the land price data from Seoul, Korea. The results offer evidence of the gradient-flattening effect of the greenbelt regulation in the study area. Copyright American Real Estate and Urban Economics Association.