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National Place-Based Policy ImpactS on Land Economics: Speculation, Market Satturation, and Policy Efficiency Under Deregulation
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Last Update: Oct. 30, 2024
Abstract (Last Update: October 30, 2024)
In this paper, I show that deregulation targeting private investment in place-based efforts can lead to short-term policy efficiency at the expense of equitable resource allocation and long-term sustainability. Investors engage in strategic speculation when they have a choice in the investment timing and location, showing an early concentration of investment in high-demand areas and ultimately contributing to market saturation. Using a quasi-experimental design based on the Opportunity Zone program, I show that this relaxed regulatory regime for investor discretion shifts 39-53% of future real estate investment and 3-6% of neighborhood benefits to earlier periods by increasing 26-34% of investment in Opportunity Zones. This speculation stimulates modest short-term land development growth in developed areas (2-4% in moderately developed areas and 5-7% in highly developed areas), with no benefit to underdeveloped and low-developed areas. The investor's focus on high-demand areas may stimulate efficient economic growth, as the price elasticity of land development supply in the housing boom cycle is +0.2 overall, increasing with the level of development: less developed areas show an elasticity ranging from +0.0 to +0.3, while more developed areas show an elasticity ranging from +0.4 to +0.6. However, economically distressed communities' inherently vulnerable socioeconomic characteristics offset the positive price effect for sustainable long-term development, making them unresponsive to development supply. These findings highlight the challenge of balancing policy efficiency with equity and sustainability. Behavioral responses to place-based incentives drive short-term growth in investment-attractive locations, with potential efficiency in resource allocation. This efficiency alone does not guarantee economic development and often conflicts with the policy goal of supporting typically less attractive locations. The implication suggests that the policy design should consider removing barriers while providing incentives, such as reducing poverty, improving infrastructure, and supporting workforce development.
In this paper, I show that deregulation targeting private investment in place-based efforts can lead to short-term policy efficiency at the expense of equitable resource allocation and long-term sustainability. Investors engage in strategic speculation when they have a choice in the investment timing and location, showing an early concentration of investment in high-demand areas and ultimately contributing to market saturation. Using a quasi-experimental design based on the Opportunity Zone program, I show that this relaxed regulatory regime for investor discretion shifts 39-53% of future real estate investment and 3-6% of neighborhood benefits to earlier periods by increasing 26-34% of investment in Opportunity Zones. This speculation stimulates modest short-term land development growth in developed areas (2-4% in moderately developed areas and 5-7% in highly developed areas), with no benefit to underdeveloped and low-developed areas. The investor's focus on high-demand areas may stimulate efficient economic growth, as the price elasticity of land development supply in the housing boom cycle is +0.2 overall, increasing with the level of development: less developed areas show an elasticity ranging from +0.0 to +0.3, while more developed areas show an elasticity ranging from +0.4 to +0.6. However, economically distressed communities' inherently vulnerable socioeconomic characteristics offset the positive price effect for sustainable long-term development, making them unresponsive to development supply. These findings highlight the challenge of balancing policy efficiency with equity and sustainability. Behavioral responses to place-based incentives drive short-term growth in investment-attractive locations, with potential efficiency in resource allocation. This efficiency alone does not guarantee economic development and often conflicts with the policy goal of supporting typically less attractive locations. The implication suggests that the policy design should consider removing barriers while providing incentives, such as reducing poverty, improving infrastructure, and supporting workforce development.
In this paper, I show that deregulation targeting private investment in place-based efforts can lead to short-term policy efficiency at the expense of equitable resource allocation and long-term sustainability. Investors engage in strategic speculation when they have a choice in the investment timing and location, showing an early concentration of investment in high-demand areas and ultimately contributing to market saturation. Using a quasi-experimental design based on the Opportunity Zone program, I show that this relaxed regulatory regime for investor discretion shifts 39-53% of future real estate investment and 3-6% of neighborhood benefits to earlier periods by increasing 26-34% of investment in Opportunity Zones. This speculation stimulates modest short-term land development growth in developed areas (2-4% in moderately developed areas and 5-7% in highly developed areas), with no benefit to underdeveloped and low-developed areas. The investor's focus on high-demand areas may stimulate efficient economic growth, as the price elasticity of land development supply in the housing boom cycle is +0.2 overall, increasing with the level of development: less developed areas show an elasticity ranging from +0.0 to +0.3, while more developed areas show an elasticity ranging from +0.4 to +0.6. However, economically distressed communities' inherently vulnerable socioeconomic characteristics offset the positive price effect for sustainable long-term development, making them unresponsive to development supply. These findings highlight the challenge of balancing policy efficiency with equity and sustainability. Behavioral responses to place-based incentives drive short-term growth in investment-attractive locations, with potential efficiency in resource allocation. This efficiency alone does not guarantee economic development and often conflicts with the policy goal of supporting typically less attractive locations. The implication suggests that the policy design should consider removing barriers while providing incentives, such as reducing poverty, improving infrastructure, and supporting workforce development.
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