Estimating the Impact of Land Use Regulation on Land Price: At the Kink Point of Building Height Limits in Fukuoka

Land use regulation is expected to decrease land values by restricting the possibility of developing to provide large floor space on the land. Particularly, the negative impact is expected to be large in the city center and the surrounding areas which have large demand for the floor space. However, in general, it is difficult to estimate the impact of land use regulation on land price due to the endogeneity problem since the unobserved characteristics of the land affect both land price and the extent of the regulations. This study estimates the impact of land use regulation on land price in city centers by exploiting the unique feature of building height restrictions imposed by aviation law in Fukuoka, Japan. The aviation law uniformly limits the height of buildings within 4000 meters (m) of an airport to 54.1 m, but when the distance exceeds 4000 m, the building height restrictions are relaxed linearly on a two percent slope based on distance from the airport. The closest airport to Fukuoka is located 3000 m from the city center, and the kink point of the building height limit (4000m from the airport) is located in the Central Business District (CBD) of the city. Exploiting this feature of the regulation, we estimate the impact of the building height restriction on the land price using the regression kink design (RKD). We find that building height restriction has a negative and significant impact on land price. The magnitude is substantial; relaxing the building height restriction by four meters, which is equivalent to one additional story, increases the land price by 12 percent.