Land use regulations as a form of market segmentation
Master of Arts
This thesis presents a theoretical model of Land Use Regulations (LUR) as a form of market segmentation. It focuses on private restrictive covenants and considers only the aspect of the separation of uses that they contain. The model concludes that the legal possibility of imposing a constraint on the conversion of land from one use to another allows a developer to increase the total value of a tract beyond the case where such restrictions were unfeasible. According to the model, price differentials between various land uses are due to the constraint on supply imposed by the LUR. In a second step, the model incorporates other possible causes for price differentials namely externality and locational factors -- fiscal aspects are neglected because of the Houston specific conditions -- and compares eight possible combinations of effects on land markets. Using the prices of lots in various subdivisions of the Houston area, and the indeniable existence of LUR in all of them, we are able to eliminate all hypotheses not containing the market segmentation element presented. The thesis concludes that while locational and externality aspects affect the land markets and cause certain price differentials, the actual distribution of these price differences cannot be rationalized by externality and locational aspects alone. Introducing a market segmentation rationale in combination with the above mentioned aspects allows us to explain the distribution of prices differences observed in our examples.