Abstract
Seoul adopted a restrictive zoning in 2003 where floor area ratios (FARs) were cut back by 28.5% in residential areas. We construct a spatial equilibrium model and measure the second-best efficiency of the FAR regulation and the efficiency loss caused by that massive down-zoning. As a second-best instrument, the FAR regulation achieves at most 4.1% of the welfare gain that the first-best policy mix could achieve over and above the free market city.
On the other hand, the down-zoning has reduced the welfare by 2.6% of the average household income. This welfare loss amounts to 4.7 trillion KRW (4.0 billion US dollars) per year and, equivalently, 1.4% of the gross regional product of Seoul. In fact, the welfare loss mostly comes from the sharp increase in housing prices. In specific, the cost of housing shortage is shown to be six times larger than the benefits from improved amenities of lower density residential areas and almost seven times larger than the benefits from relieved congestion of road and non-road infrastructure.
On the other hand, the down-zoning has reduced the welfare by 2.6% of the average household income. This welfare loss amounts to 4.7 trillion KRW (4.0 billion US dollars) per year and, equivalently, 1.4% of the gross regional product of Seoul. In fact, the welfare loss mostly comes from the sharp increase in housing prices. In specific, the cost of housing shortage is shown to be six times larger than the benefits from improved amenities of lower density residential areas and almost seven times larger than the benefits from relieved congestion of road and non-road infrastructure.
| Translated title of the contribution | Regulation of Floor Area Ratios and Its Efficiency |
|---|---|
| Original language | Korean |
| Pages (from-to) | 129-152 |
| Number of pages | 24 |
| Journal | 국토계획 |
| Volume | 52 |
| Issue number | 6 |
| DOIs | |
| State | Published - Dec 2017 |