Analyzing the Impact of Planning Regulations on Housing Prices and the Expansion of Informal Settlements

Publication Type:
Thesis
Issue Date:
2023
Full metadata record
Informal settlements grow or decline due to relative levels of deprivation and vulnerability, which in turn are influenced by conditions in formal housing markets. The extant literature on the role of planning regulations in the growth of informal settlements is limited, and studies take varying approaches to three major methodological difficulties in working on regulatory systems: endogeneity, heterogeneity, and temporality. Like most studies on the price-inflationary effect of planning regulations, they use static models and mainly address the effect of one regulation (Minimum Lot Size (MLS)). The effects of other major planning regulations, including Maximum Building Density (MBD) and Urban Growth Boundary (UGB), are not fully explored, and their combined effects over time are overlooked. The thesis uses the System Dynamics method as a new methodological approach to developing a dynamic non-spatial model of the interaction of the housing market, the land market, and the housing construction sector, constrained by three major planning regulations: MBD, UGB, and MLS. The connections among model elements are based on causal relationships derived from microeconomic theory and the observed causal links between planning regulations and housing and land markets in real-world cases from Iran as a developing country where informal settlements have been growing for more than half a century. Based on simulation results, this causal structure demonstrates planning regulations’ incremental effects on formal housing price trends may exclude low-income households from formal housing markets because they cannot afford the minimum liveable space without sacrificing other necessities. Dynamic simulations indicate that changing housing price trends are more important drivers of the marginalization of low-income households, in contrast to changing long-term equilibrium housing prices, as static models suggest. The study finds that MBD can change both the trend and the long-term equilibrium price dramatically, UGB can change the trend dramatically but has only small effects on long-term equilibrium price, and MLS has limited effects on housing price trends. Simulations show that the combined effect of planning regulations is nonlinear. Thus, policymakers should be more cautious in applying MBD than using the other two. The simulation results also demonstrate that national-level factors such as unequal income distribution, the cost of capital, and the price of capital factor can be more influential than local government’s planning regulations on the number of informal dwellers. Therefore, in alleviating the informal settlement problem, national-level policy measures should have higher priority than the local regulatory policy tools.
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