DP14546 The Welfare Effects of Greenbelt Policy: Evidence from England

Author(s): Hans R.A. Koster
Publication Date: March 2020
Keyword(s): Gravity, greenbelts, Housing, open space, supply constraints, urban growth boundary
JEL(s): G10, R30
Programme Areas: Public Economics, International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14546

I measure the economic effects of greenbelts that prohibit new construction beyond a predefined urban fringe and therefore act as urban growth boundaries. I focus on England, where 13% of the land is designated as greenbelt land. I estimate a quantitative general equilibrium model that includes amenities, a traffic congestion externality, agglomeration forces, productivity and household location choices. To identify causal effects of greenbelt land, I construct counterfactual greenbelts, use greenbelt land in 1973, or focus on areas within a km of greenbelt boundaries. I show that greenbelt policy generates positive amenity effects, but also strongly reduces housing supply. Overall, the residents' income increase that would be necessary to compensate for the presence of greenbelts is about 3%; hence, residents are worse off. By contrast, greenbelt policy benefits land owners as total land revenues are about 7.5% higher due to greenbelts. Total net welfare effects appear to be small, but distributional effects are large.