Estimating the Economic Value of Zoning Reform

We develop a framework to estimate the economic value of a recent zoning reform in the city of São Paulo, which altered maximum permitted construction at the city-block level. Using a spatial regression discontinuity design, we show that developers respond to the reform with short-run increases in filings for multi-family construction permits in blocks with higher allowable densities. In the medium-run we observe increases in housing availability and reductions in house prices in neighborhoods that were allowed more densification. Welfare is then estimated with an equilibrium model of housing demand and supply that allows for endogeneous housing regulation. We finding that, in the long-run, the reform produces a 1.9% increase in housing stock and a 0.5% reduction in prices, with substantial heterogeneity across neighborhoods. Consumer welfare gains due to price reductions are small, but increase 4-fold once accounting for changes in built environment, with more gains accruing to college educated and higher income families. However, nominal house price losses faced by landlords and existing homeowners overshadow all consumer welfare gains.