Effects of Zoning on Residential Option Value

Knowing more precisely how zoning affects housing value would allow policy-makers to improve long-term policy decisions. Previous studies have concluded that local zoning regulations affect residential option value. These studies, however, do not specify the magnitude of the effect for varying zoning types. This study quantifies zoning’s effect on residential option value for specific types of zoning using a hedonic regression model of housing prices. The study utilizes information on housing characteristics and sales prices for a cross-section of houses in Monongalia County, West Virginia. The research develops two models to differentiate between zoning effects on developed versus undeveloped properties. The research finds that R1 and R1a zoning regulations – the most common types of residential zoning in Monongalia County – significantly impact housing value.