The Dynamics of Urban Development: Evidence from Land Use Reform in New York

My research studies the impact of land use policies on urban development and welfare. It exploits an ambitious policy experiment led by Mayor Bloomberg in New York City during 2002-2013. The reform relaxed land use regulations and increased the floorspace allowance, equivalent to 5 percent of the city's total housing stock. Using a granular panel data set and the spatial ring-method design, I find the quantity of supply responded slowly to the reform. The policy-induced new development generated positive spillover effects in surrounding areas, but were delayed by the slow supply response. To quantify the welfare implications, I develop a dynamic spatial model, featuring the interaction between the lumpy adjustment of housing supply and the spatial reallocation of heterogeneous workers. For estimation, the paper uses Euler's method combined with a key property from the land market equilibrium to reduce the computation burden. Counterfactual analysis suggests that the reform increases the total housing supply by 0.7 percent in the long run and delivers welfare benefits for both high- and low-skilled workers. The reform reduces the regulatory constraints on housing, but it is not enough to help supply overcome high redevelopment costs in this market. These costs erode 67 percent of the policy's potential impact on new development. The findings highlight the persistence of supply frictions thwarting the growth of productive cities.

Xuequan Elsie Peng is a doctoral student in the Department of Economics with interests in urban and real estate economics. Her research employs empirical estimation methods from the field of Industrial Organization to study questions related to housing development, land use regulations, and spatial evolution of cities. Elsie’s dissertation won the Stevens Graduate Fellowship from the North American Regional Science Council. Prior to her graduate studies, Elsie worked at Wharton Real Estate Center on numerous projects ranging from boom-and-bust cycle of US housing market, steering in residential brokerage market, to migration and slum upgrading in Indonesia. Elsie holds a BA in Mathematics and Economics from the University of Michigan – Ann Arbor.