The regulation of optimal development density

Tan Lee, Jyh Bang Jou

Research output: Contribution to journalArticlepeer-review

12 Scopus citations


This article investigates how a policy-maker should choose a density ceiling and how the optimal policy is affected by the underlying demand and technology parameters. We assume that developed properties reduce open space, and thereby harm urban residents. However, landowners will ignore this negative externality, and will thus develop property more densely than is socially optimal. A regulator can correct this by imposing a density ceiling control. The regulator should force developers to develop less densely when (1) land development becomes less risky, (2) the development costs are expected to grow more rapidly, and (3) the rents of undeveloped land are lower. This is because under these three scenarios, a social planner will choose to develop vacant land sooner, and thereby develop it less densely.

Original languageEnglish
Pages (from-to)21-36
Number of pages16
JournalJournal of Housing Economics
Issue number1
StatePublished - Mar 2007


  • Development density
  • Negative externality
  • Real options
  • Regulation


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