City Land Use and Rent Dynamics with Location Externalities and Zoning Regulations

Researchers embracing agent-based microsimulation models often criticize the inability of urban equilibrium models to reflect spatial heterogeneity and transitional dynamics. These limitations are major barriers for land use and transportation planners who may wish to apply urban economic models in regular planning processes. To this end, this paper extends Anas’ spatial computable general equilibrium model to enable more land use detail, population growth, and change dynamics. In particular, the new model specification will track not just different parcel sizes and access attributes, but also various location externalities (e.g., neighborhood diversity, local amenities, and production externalities emerging from innovation diffusion) that affect agent (household and firm) decisions. The model also allows for three sources of spatial dynamics, including demographic change, building stock conversion subject to zoning regulations, and evolving location externalities. The model is calibrated in 38 zones using Austin, Texas data, and simulations compare the dynamics of land use, housing demand, and rent, under four scenarios with different assumptions on land-use preference and regulations.