Southern California provides a unique environment for research with its spectrum of zoning, density, and transportation policy environments. Zoning policy, in particular, is a significant area of focus within urban planning due to its ability to impact residents’ quality of life. Changes in zoning density policy can improve urban congestion and physical property value and serve as a blueprint to positively impact the quality of life for other urban populations. In the PSR-funded report, “Zoning and the Density of Urban Development,” USC Assistant Professor of Finance and Business Economics, Andrii Parkhomenko, Claremont McKenna College Assistant Professor of Economics, Matthew Delventhal, and USC Doctoral Candidate in Economics, Eunjee Kwon, develop a quantitative equilibrium model to identify zoning policy adjustments the city could enact to improve job accessibility and ease of transportation for residents of Los Angeles, Orange, Riverside, Ventura, and San Bernardino counties.

The researchers built a quantitative general equilibrium model (GEM) of residence and employment choices under municipal density limits. The equilibrium model builds upon a 2015 quantitative model developed to examine an urban area embedded within a larger economy, which assumes that market forces will lead to a balanced equilibrium between supply and demand in markets for goods and services, labor, and housing. In the model, developers decide where to build, businesses decide where to offer jobs, and workers decide where to live and work given location characteristics, transport infrastructure, and zoning restrictions. Using employment, real estate, and commuting data, Parkhomenko and his team quantified the model and identified effective density restrictions for 3,917 neighborhoods (census tracts) in the Los Angeles metropolitan area. Using the model, the researchers simulated two counterfactual experiments: (1) reducing density zoning restrictions and (2) improving transport infrastructure. In particular, they examined the effects on the price of housing, average wages, and job and housing density. All of these variables are linked through a transportation network that is pre-determined in the model.

In the first scenario, the zoning density requirements were relaxed to the level of Downtown Los Angeles. Their experiment found that relaxed zoning could increase employee productivity and reduce their daily commute times. The relaxation of the density limitations increases the availability of housing in proximity to workplaces and, at the same time, reduces average housing prices. In the model, worker productivity depends on the economic benefits that arise from the co-location of firms, on the amount of floorspace these firms can use to produce goods and services, and on the access of workers to jobs. Higher productivity translates into higher workers' earnings. At the same time, a worker's well-being depends on their earnings, as well as the amount of housing they can buy and the length of commute. They found that with more relaxed density requirements, the model-based measure of worker productivity increased by 35% and average well-being increased by 57%.

In the second experiment, infrastructure improvements were added to the roadways which would remove the time and inconvenience of traffic. Improving road structure and introducing traffic control that would allow automobiles to travel at an unimpeded 65 mph nearly halved the average daily commute time and led to an increased worker productivity of 2.2%. The average well-being increased by 30%. At the same time, it slightly raised the overall costs of residential and commercial floorspace by about 1% to 9%, most likely attributed to how improved transportation increases the demand for floorspace in the most desirable areas and increases the density in those areas to the limit.

Overall, the zoning policy improvements were found to be substantially more beneficial than improvements in transport infrastructure. Greater access to jobs due to better transportation yields limited benefits if the density of real estate is still limited at the current levels. The results found in this study play a vital role in providing a vision for how to develop transportation policy that provides better living and working conditions. Parkhomenko and his team’s findings illustrate how policies on zoning and density have a real and measurable impact on our lives and well-being.