How does a development moratorium affect development timing choices and land values?

Jyh Bang Jou, Tan (Charlene) Lee

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

This paper investigates how a development moratorium affects choices of development timing and land values in a framework where both the value of developed property evolves stochastically and the development costs are fully irreversible. We assume that a regulator initially announces that land is not allowed to be developed during a finite period of time in the future. A developer, thus, must decide whether to develop land before the timing ordinance is imposed, or after it expires. The development moratorium reduces the developer's option value from waiting and, thus, accelerates development. We also use simulation analysis to demonstrate how the other factors that relate to the demand and supply conditions of the real estate market affect this accelerating effect.

Original languageEnglish
Pages (from-to)301-315
Number of pages15
JournalJournal of Real Estate Finance and Economics
Volume39
Issue number3
DOIs
StatePublished - 2009

Keywords

  • American options
  • Development moratoria
  • Growth controls
  • Real options

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