How Do Density Ceiling Controls Affect Housing
Prices and Urban Boundaries?
Tan (Charlene) Lee
Published online: 24 April 2014
Springer Science+Business Media New York 2014
Abstract This article investigates how density ceiling controls in a monocentric city
with a stochastic population affect housing prices and the location of the city boundary.
We employ a real options model in which each landowner owns one unit parcel of land
and chooses the timing and the level of capital intensity for development of the parcel.
The landowner incurs up-front development costs that are irreversible and thereafter
receives stochastic urban rents. A tighter density ceiling control will extend the urban
boundary and decrease housing prices. The urban spatial expansion problem will be
intact, but the landowner will delay development when city population is expected to
grow less rapidly over time or becomes more volatile.
Keywords Capital intensity
Density ceiling controls
JEL Classification G13
Density ceiling controls are pervasive in U.S. metropolitan areas because of concerns
about aesthetics, environmental quality, traffic congestion, and insufficient infrastruc-
ture. Two theoretical articles by Bertaud and Brueckner (2005) and Mills (2005)have
offered deep insights regarding how these controls affect housing prices and urban
boundaries. Both articles agree that density ceiling controls unambiguously raise
housing prices and cause excessive spatial expansion.
The purpose of this article is
J Real Estate Finan Econ (2015) 50:219–241
Brueckner and Sridhar (2012) confirm the spatial expansion effect by using the data on India’scities.
J.<B. Jou (*)
Graduate Institute of National Development, National Taiwan University, 1 Roosevelt Road, Section 4,
Taipei 106, Taiwan
T. L ee (*)
Department of Accounting and Finance, The University of Auckland, Owen G Glenn Building, 12
Grafton Road, Auckland, New Zealand