policymakers demonstrate

Skilled Cities and Efficient Urban Transport 381
land rent that exceeds public expenditure. In contrast, when public expenditure
exceeds the aggregate land rent, the population is below the optimal size.
On this occasion, it is worth recalling that the gigantic transformation of Paris
under the direction of Georges-Eugéne Haussmann in the second half of the
nineteenth century was financed by ‘the money … borrowed against future
revenues that would result from the increased property values created by the
planned improvements’ (Barnett, 1986). What was possible then should be possible
today, allowing our cities to finance – at least up to a certain threshold –
the investments made to improve urban life.
Equally important, a better understanding of the land market allows shedding
light on an ongoing heated debate in many European countries, namely rent
control and land-use planning. Contrary to a belief shared by the media and the
public, past and current rise in housing costs in many European cities is driven
mainly by excessive, rather than insufficient, regulation of the housing and land
markets. Public policies typically place a strong constraint on the land available
for housing. By instituting artificial land rationing, these policies reduce the
price elasticity of housing supply; they also increase the land rent and inequality
that go hand in hand with the growth of population and employment. For
example, the evidence collected by Glaeser and Gyourko (2003) in the US suggests
that ‘measures of zoning strictness are highly correlated with high prices’,
while Brueckner and Sridhar (2012) find large welfare losses for the building
height restrictions in Indian cities. The beneficiaries of these restrictions are
owners of existing plots and buildings. Young people and new inhabitants, particularly
the poorest, are the victims of these price increases and crowding-out
effects, which often make their living conditions difficult. In a detailed study
of the causal effect of land use regulation in the US, Turner et al. (2014) find
that the implications of regulatory constraints for land prices and welfare can
be decomposed in three parts: (i) how land in specific plots is used, (ii) how
land nearby is used, and (iii) the overall supply of developable land. Due to lost
residential land, the first effect has a negative and substantial impact on welfare,
while the third one induces losses for residents that are almost offset by
land owners’ gains. The estimates are not precise enough to determine the sign
of the second effect.
By restricting population size, the implementation of urban containment
hurts new residents by reducing their welfare level or motivates a fraction of
the city population to migrate away. In addition, such policies prevent the most
productive cities from fully exploiting their potential agglomeration effects.
Admittedly, environmental and esthetic considerations require green space.
However, the benefits associated with providing such spaces must be measured
against the costs they impose on the population. For example, housing
land in southeast England was worth 430 times its value as farmland (Cheshire
et al., 2014). Under such circumstances, the land rent level also reflects the