Traffic Congestion and Land Use Regulations: Theory and Policy Analysis

By Tatsuhito Kono and Kirti Kusum Joshi

Traffic Congestion and Land Use Regulations: Theory and Policy Analysis explores why, when, where and how land use regulations are utilized in cities to address road transportation congestion. The book shows how to design optimal density and zonal regulations for efficient traffic flow in cities, examines land use regulations using optimal control theory, and offers detailed insights into the mechanisms behind optimal regulations and techniques for exploring spatial optimal policies. Discussions from this book will help highlight the practical usefulness of land use regulations for the maximization of urban social welfare.

• Uniquely explores land use regulations and traffic congestion from both theoretical and applied perspectives
• Reviews and summarizes the most recent academic research in urban economics, land use management and transportation congestion
• Demonstrates important, but less commonly used regulations, such as minimum floor area regulations
• Provides insights on how to construct smarter cities using the latest research in land use regulations

• Language: English
• Publisher: Elsevier Science
• Release date: Aug 20, 2019
• ISBN: 9780128170212

Tatsuhito Kono

Tatsuhito Kono is Professor of Information Sciences at Tohoku University. He researches transportation, urban economics, land use regulation, property tax, transportation toll policies, and spatial analysis of cities. His work has been published in Journal of Urban Economics, Regional Science and Urban Economics, Journal of Housing Economics, and Journal of Economic Geography.

Book preview

Chapter One

Introduction

Abstract

In this chapter, we review theoretical studies on land use regulations. The purpose of this review is to capture the overall flow of development of models for analyzing land use regulations and not to show a comprehensive review of the studies. To address the spatial mechanisms of land use regulations, we basically review only general equilibrium models and ignore empirical research on land use regulations. In addition, we do not review growth control papers, which consider only the population distribution across cities and ignore heterogeneous spaces with transportation and amenities within a city. Basically, we focus on the ingredients that play an important role in determining land use regulations in a city.

Keywords

Previous studies on land use regulation; Determinants of land use regulation

Land use regulations are common urban policies in most cities all over the world. Common regulations include (1) zoning by which land use is restricted zone by zone; (2) lot size (LS) regulation, which restricts the size of each housing lot; (3) urban growth boundary (UGB) control, which separates urban development areas from urbanization control areas; and (4) floor area ratio (FAR) regulation,a which restricts building sizes. The adoption and implementation of these regulations vary according to the country or the city. In some cases, multiple regulations may be applied to a single building; likewise, each regulation could be implemented in slightly different ways.b

Why do cities impose land use regulations? In practice, cities impose land use regulations for various reasons such as to mitigate traffic congestion and noise, improve urban aesthetics, control air pollution, recover public service cost, or reduce frictions between agents (e.g., landowners and residents) and conflicts in land use.c Similar to other public policies, the targets of practical land use regulations are not necessarily economically reasonable. Nevertheless, sufficient accountability is required for regulations because the regulations restrict residents and landowners from freely using their property as they wish, and in most cases, regulations result in costs for them. Hence, land use regulations should be justifiable.

Moreover, buildings are probably one of the most durable goods ever produced. Accordingly, if a regulation at a certain time leads to inefficient urban land use, it remains inefficient for many years. An inefficient result of land use regulation can be seen in Moscow. As shown in Fig. 1.1 borrowed from Bertaud and Renaud (1997), the Moscow bureaucratic density control led to a perverse, inverted population density pattern in which suburban areas have more residents than the central areas, in contrast to Paris where the reverse is true. The density pattern in Moscow generates heavy traffic burdens. Another example is seen in suburbs in Tokyo. Fig. 1.2 shows change in the population density in three suburb towns according to the distance from the nearest station in 2005 (Sagamihara City, 2011). These three towns are new towns, informally called bed towns, which were built as residential places for employees working in the center of Tokyo. Comparing the density patterns among the three towns, while the population density decreases with distance in Hachiouji and Hashimoto, the density is almost constant in Machida. The constant density of Machida generates greater congestion of commuting trips than in the other two towns. This difference in population density patterns is probably caused by past land use planning.

Fig. 1.1 Comparison of density gradients of Moscow and Paris. (Source: Bertaud, A., Renaud, B., 1997. Socialist cities without land markets. J. Urban Econ. 41 (1), 137–151.)

Fig. 1.2 Comparison of density gradients among towns in Tokyo. (Source: Sagamihara City, 2011. Outlook of Sagamihara and Machida Using Maps, p. 52.)

As these different density patterns show, it is important to set appropriate land use regulations or policies to achieve efficient population density patterns. However, as this book will show, the urban mechanism behind land use regulations is not straightforward. Accordingly, careful consideration in city planning is required at any time.

In economics, policies can be evaluated and accounted for from two viewpoints: efficiency and income distribution. In this book, we explore land use regulations from these two perspectives. However, we focus more on efficient land use regulations because the effect of land use regulations on income distribution is so indirect and complex that policy makers do not adopt land use regulations from the viewpoint of income distribution in most cases. Nevertheless, because land use regulations do not normally involve income redistribution, it is important to know the effects of land use regulation on the income distribution between agents. This book explores the different effects on landowners and residents.

Urban activities in the market mechanisms lose efficiency in various manners. Land use regulations can deal with several types of market failures such as agglomeration economies in business areas, congestion externality, pollution (e.g., noise and air pollution), blocked sunlight or air circulation between buildings, aesthetic degradation of landscape, and nonoptimal investment costs of public facilities such as roads and water and sewage systems. These market failures incur huge social costs.

One important market failure is traffic congestion externalities. Traffic congestion in the United States in 2007 caused an additional 4.2 billion hours of travel and an extra 2.8 billion gallons of fuel consumption, costing a loss of $87.2 billion in travel time and fuel alone (Schrank and Lomax, 2009). In Japan, about 8 billion hours per year are lost due to traffic congestion, and this amount corresponds to about 40% of the travel time (Ministry of Land, Infrastructure, Transportation and Tourism, 2015). Traffic congestion externality spatially extends from the center of a city to its boundary, and its magnitude depends on the location. So, land use and densities at locations in a city with traffic congestion are obviously inefficient.

Another important market failure is agglomeration economies, which arise from high employment density because of easy access to intermediate goods and labor, facilitating job matching, and knowledge spillovers, among others (Fujita and Thisse, 2013; Rosenthal and Strange, 2004; Puga, 2010). The employment elasticity of city productivity, which is a typical measure of agglomeration economies, is estimated to be 0.05 in the EU region (Ciccone, 2002) and Japan (Nakamura, 1985) and 0.06 in the United States (Ciccone and Hall, 1996).d In other words, doubling the employment density would increase the city output by 5% in the EU region and Japan and 6% in the United States.

Agglomeration economies generate spatial concentration of workers, although the concentration level is insufficient. The geographical concentration of workers simultaneously produces commuting trips from residential areas to the business areas. As agglomeration economies increase, the number of concentrated workers increases, and simultaneously the total length of trips in a city increases. We have to deal with such spatial land use patterns to increase the welfare of city residents.

These externalities can be completely internalized by spatially differentiated Pigouvian tax (or subsidies), which are differences between the social marginal cost (benefit) and the private marginal cost (benefit). However, for political reasons in particular, it is hard to implement such space-dependent Pigouvian taxes and subsidies.

Indeed, Pigouvian taxes, or even diluted versions of Pigouvian taxes, have never been the common measures to address urban spatial externalities such as congestion and agglomeration economies. For example, although most cities in the world suffer from severe traffic congestion, when a few advanced cities (e.g., London, Milan, Oslo, Singapore, and Stockholm) introduced congestion pricing, it had been more than 50 years since John Kain and William Vickrey proposed practical versions of congestion pricing in the 1950s following Pigou's (1920) initial proposal (see Harsman and Quigley, 2011). Furthermore, current practical applications of congestion pricing are in the form of cordon or area pricing and are far from the first-best congestion pricing. For agglomeration economies, labor subsidies have been proposed by many studies (e.g., Kanemoto, 1990; Fujita and Thisse, 2013; Lucas and Rossi–Hansberg, 2002). Nevertheless, labor subsidies have never been introduced in any cities and probably never been discussed either.

In contrast to such first-best policies, land use regulations have been imposed for a long time in many cities around the world.e This common use of land use regulations is partly because governments tend to prefer quantity regulations to price regulations. For example, in the United States, 92% of the jurisdictions in the 50 largest metropolitan areas have zoning ordinances of one kind or another in place, and only 5% of the metropolitan population lives in jurisdictions without zoning (Pendall et al., 2006). In Japan, most cities have their own local city planning councils to make city plans. However, it is not an easy task for the governments to rationally design optimal land use regulations because of the need to consider change in price distortions caused by the regulations and change in spatial externalities.f Indeed the mechanisms involving a spatial equilibrium are complex.

Against this background, it is very important to find optimal land use regulations, by clarifying how the distortions and externalities change according to land use regulations and by clarifying the mechanisms, which depend on the urban situation (e.g., whether or not population changes in response to land use regulation) or the externality characteristics.g For this purpose, we need a theoretical model in which the outcomes of all the agents’ behaviors are in equilibrium and the equilibrium depends on land use regulations.

In this chapter, we review theoretical studies on land use regulations. The purpose of this review is to capture the overall flow of development of models for analyzing land use regulations and not to show a comprehensive review of the studies. To address the spatial mechanisms of land use regulations, we basically review only general equilibrium models and ignore empirical research on land use regulations.h In addition, we do not review growth control papers that consider only the population distribution across cities and ignore heterogeneous spaces with transportation and amenities within a city. Basically, we focus on the ingredients, which play an important role in determining land use regulations in a city.

The following discussion classifies the theoretical studies into five categories. The first four categories of the studies explore efficiency of land use regulations rather than income distribution. The first category includes studies up to the year 2000. Many studies in this period use Alonso-type models and regard the central business district (CBD) as a point in the center of the city (a point CBD). The second category of studies, published after 2000, also features Alonso-type models but with some modification (e.g., a city with high-rise residential buildings but a point CBD). The third category extends the Alonso model from a point CBD by adding nonzero business areas or considering duocentric city. The fourth category leaps from the Alonso model to demonstrate dynamics and a system of cities and is published after 2000. The last category explores mainly income distribution of land use regulations, rather than efficiency. The studies in each category are summarized in the tables on the following pages.

Theoretical studies on the efficiency of land use regulations first appear in the 1970s, following the Muth (1961) model, the Mills and De Ferranti (1971) model, and the Solow (1973) model, which incorporate road congestion into the Alonso (1964) model. Table 1.1 summarizes such studies on land use regulations from the 1970s up to 2000.

Table 1.1

Abbreviations: UGB, urban growth boundary; FAR, floor area ratio; LS, lot size.

Studies in this period, except for Arnott and MacKinnon (1978) that numerically calculate the welfare cost of building size regulation, take account of cities composed of only detached houses and roads. Most studies use an Alonso-type model, that is, a static monocentric city. For example, Kanemoto (1977), Arnott (1979), Pines and Sadka (1985), and Wheaton (1998) use Alonso-type models to explore deviation of shadow prices from market prices of housing at different locations under unpriced congestion. A graphical representation of this type of cities is shown in Fig. 1.3, where each cylinder on the city circle indicates a house, and the base of the cylinder represents the lot size. As a result of rent competition among residents, the lot size is larger in the suburbs than in the central area. This Alonso-type model has only detached houses and no high-rise buildings so that the inverse of the lot size expresses population density. Another important feature is a point CBD.

Fig. 1.3 Alonso-type model incorporating congested roads.

Among other studies using similar models, Stull (1974) and Helpman and Pines (1977) explore zoning, taking account of nonzero business areas in addition to the residential areas. Sullivan (1983) considers external economies of scale in production in nonzero business areas under traffic congestion, using numerical simulations. Helpman and Pines (1977), Engle et al. (1992), and Sakashita (1995) extend the Alonso-type models to include multiple cities. In contrast to the previously mentioned static models in this period, Brueckner (1990) and Ding et al. (1999) derive the efficient dynamic path of the