Do households value lower density: Theory, evidence, and implications from Washington, DC

Abstract

A substantial literature demonstrates that zoning restrictions on building height or density lower supply and increase housing prices. However, negative externalities due to household preferences for lower neighborhood density could justify restrictions on private developers. Thus building density in a laissez-faire city may be above the welfare maximizing level. The potential external costs of height and density are tested here and found to be substantial. Increased building separation appears to mitigate the external cost of height. This implies that some level of density or floor regulation (FAR) may be welfare-enhancing, and that the gap between price and marginal construction cost may overstate the social cost of zoning because households value lower density. The analysis considers residential density and not employment density which can give rise to other types of externalities.