Land Hoarding and Urban Development

This paper presents a model of a housing market with a fixed supply of land available for future development. Building density and the rate of land development are both endogenous. Competition amongst atomistic landowners leads to welfare-maximizing development policies. However, a monopolist landowner develops land faster, with lower building density, than a welfare-maximizing social planner. Unless demand is very high, the first effect dominates, because a monopolist landowner increases the size of the housing stock faster than a social planner. Rapid, low-density development is a commitment device. It boosts the monopolist's development proceeds by making it more difficult to flood the market with new housing in the future