Working Paper: NBER ID: w31895
Authors: Fil Babalievsky; Kyle F. Herkenhoff; Lee E. Ohanian; Edward C. Prescott
Abstract: Commercial real estate accounts for roughly 20% of the U.S. fixed asset stock, and commercial land use is highly regulated. However, little is known about the quantitative impact of these regulations on economic activity or consumer welfare. This paper develops a spatial general equilibrium model of the U.S. economy that includes commercial real estate regulations and congestion effects, the latter of which provide a rationale for such regulations. The model is tailored to exploit the near-universe of CoreLogic's commercial, parcel-level, property tax records to construct a quantitative index of commercial real estate regulations for nearly every commercial property. We use the model to evaluate the positive and normative impacts of commercial land use deregulations. Moderately relaxing commercial regulations across all U.S. cities yields large allocative efficiency effects, with output gains of about 3 percent to 6 percent and welfare gains of about 3 percent to 9 percent of lifetime consumption. We also find significant positive and normative gains from deregulation with 40 percent of the labor force working remotely.
Keywords: Commercial Real Estate; Regulations; Economic Activity; Welfare; Deregulation
JEL Codes: E02; K2; R2; R3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| moderately relaxing commercial regulations across U.S. cities (R38) | significant allocative efficiency effects (D61) |
| significant allocative efficiency effects (D61) | output gains of about 3% to 6% (E23) |
| significant allocative efficiency effects (D61) | welfare gains of about 3% to 9% of lifetime consumption (D69) |
| national deregulation scenario (L51) | national output projected to increase by 30% (E23) |
| national deregulation scenario (L51) | commercial building stock increasing by 18% (L74) |
| higher wealth from deregulation (G18) | reduces labor supply (J20) |
| reduces labor supply (J20) | promotes higher welfare (D69) |
| increasing the floor area ratio limit in New York City (R38) | raises output by 18% (E23) |
| increasing the floor area ratio limit in New York City (R38) | 6% increase in the MSA building stock (L74) |