The importance of urban zoning regulations

I have blogged on multiple occasions earlier that zoning is perhaps the most powerful but low-cost policy lever available to policy makers in developing countries to shape the destinies of their cities. Its value also comes from the fairly high degree of flexibility (for policy makers) and low levels of friction (in terms of implementation and realisation of outcomes) in its implementation.  

The main levers of zoning are relaxation of the restrictions on building regulations, floor area ratio and height, and land usage.  

Allison Shertzer, Tate Twinam, and Randall P. Walsh have a paper which looks at the long-term impact of zoning regulations. They used the natural experiment from the first comprehensive zoning ordinance adopted by Chicago in 1923 to analyse lot-level land use data by controlling for pre-zoning characteristics. They find that zoning has very broad and significant impact on spatial distribution of economic activity,

In particular, zoning may be more important than either geography or transportation networks – the workhorses of urban economic geography models – in explaining where commercial and industrial activity are located. Furthermore, rather than simply “following the market,” zoning appears to be a powerful tool for achieving separation of uses. Our results strongly suggest that over the long-run urban planning has been effective in creating residential neighborhoods that are distant from undesirable manufacturing uses, and that houses in these neighborhoods are more valuable as a result... Previous research has focused on the causes of macro-level persistence such as agglomeration economics, locational fundamentals, durable capital, and natural advantages... At the same time, block-level persistence has received far less attention, and institutional factors such as zoning have been left largely unexplored. Our results suggest that policymakers have great power to shape the overall form of cities, and the spatial arrangement of economic activity in urban areas a century from now may be largely the consequence of land use regulation choices made today.

This means that instead of being bogged down with the problems of scarce government land, limited stock of affordable housing, and deficient transportation and utility infrastructure, policy makers should focus their attention on deploying zoning regulations effectively to shape the long-term form and fortunes of their cities. 

The simple levers of zoning can be used to expand the stock of buildable space available (thereby influencing property prices), concentrate populations and economic activities, guide the locations of economic activities, catalyse economic systems and markets, and optimise work and other commutes. They can be very important contributors to addressing pervasive urban problems like traffic congestion, affordability in property markets, commute times etc. 

In the form of master plans and coupled with complementary infrastructure investments (especially in transportation), they are a form of forward guidance to shape the city's long-term development trajectory.