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LAND USE WHY REGULATE LAND? LOCAL MOTIVATION FOR REGULATING-WHY WE REGULATE 1) There are tax consequences on the local level -school, services -Greater tax development means more taxes for the locality, but many times the increase in tax revenue is not offset by increase need in services. 2) People like the status quo . -Houston vs. Dallas, D property values are higher b/c they can point out they have minimized externalities. In H, effect of X is worth less. 3) We have always regulated land -historically, like in Boston things that were not allowed to be done today were done then. COSTS OF REGULATING 1) Direct Costs of Regulating Regulator-paying those in regulatory system (Salaries, budget). Must allocate a cost estimate. Regulatees-filling out forms and following regulations-HUGE paperwork costs. 2) Indirect Costs -Regulation prevents you from doing something you would otherwise do. -So the indirect cost is to reduce commerce . The combination of indirect costs and direct costs generally lead to higher transaction costs in commercial exchange -exception for monopolies which may free up commerce-like the example of Refinancing Industry (had hidden costs at the closing, but imposition of uniform fee structure allows people freedom to compare prices). ALTERNATIVES TO REGULATING-THE MARKET THE MARKET 1) NYC Rent Controls -effect is to shift wealth from tenant to landlord. -Rent Control tenants are older (median age +70), 75% white, and rent control apartments are Larger (25% 4 rooms). -Results in less turnover, especially in larger apts where in an efficient market the tennant would not need the space, but since not getting a premium not moving and leads to less housing for large families who actually need it.
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-results in depressed supply for non-rent control and 2) less development of new apts from future rent-control laws. -No incentive to upkeep building with less rents coming in and no higher rent for increased investment. Lead to churning of tenants. Coop Investment increases because of scarcity of housing from rent controlling inflating its prices. Shifts imbalance from renting to buying. So Coop has incentive to keep regs, as just like zoning it protects current owners and passes on costs to future owners. Eliminate Rent control? -Those prices going up due to market will be offset by decrease in price of non-rent control places. More likely to decline from de-regulation. 2) Problems with the marketplace Market model assumes costs and values were taken into account. HOWEVER, the market does not take into account Externalities, it only looks at costs and benefits inside the transaction. Externalities- the costs of the transaction to to 3 rd parties external to the transaction. Thus, the market is not an efficient solution.
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This note was uploaded on 02/13/2008 for the course LAW 7002 taught by Professor Halperin during the Spring '04 term at Yeshiva.

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