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Abstract:

CEP Discussion Paper
The Role of Demand in Land Re-Development
Felipe Carozzi
May 2018
Paper No' CEPDP1549:
Full Paper (pdf)

JEL Classification: R14; R31


Tags: re-development; supply elasticity; brownfields

Several governments throughout the world apply policies aimed to re-mediate and recover vacant or idle land for other uses. This paper provides estimates of the price sensitivity of redevelopment, a crucial parameter for the success of these policies. My cross-sectional estimates measure how prices affect long-run conversion of unused or underused previously developed land in England. In order to solve the classical problem in the estimation of supply elasticities from market outcomes, I exploit school quality information and school admission boundaries to obtain a demand-shifter that is orthogonal to re-development costs. Estimation is conducted using a boundary discontinuity design based on this instrument. Results show that the probability of re-development is effectively sensitive to housing prices. Estimates indicate that a 1% increase in housing prices leads to a 0.07 percentage point reduction in the fraction of hectares containing brownfield land. Back-of-the envelope calculations using these estimates suggest that a large increase of 21% in prices across locations, or an equivalent subsidy, would be required to eliminate most of these vacant or underused land plots.