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Abstract:

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SERC/Urban and Spatial Programme Discussion Paper
The Economic Effects of Density: A Synthesis
Gabriel M. Ahlfeldt and Elisabetta Pietrostefani
January 2017
Paper No' SERCDP0210:
Full Paper (pdf)

JEL Classification: R38; R52; R58


Tags: compact; city; density; meta-analysis; elasticity; urban

This paper synthesises the state of knowledge on the economic effects of density. We consider 15 outcome categories and 202 estimates of density elasticities from 102 studies. More than 50% of these estimates have not been previously published and have been provided by authors on request or inferred from published results in auxiliary analyses. We contribute own estimates of density elasticities of 16 distinct outcome variables that belong to categories where the evidence base is thin, inconsistent or non-existent. Along with a critical discussion of the quality and the quantity of the evidence base we present a set of recommended elasticities. Applying them to a scenario that roughly corresponds to an average high-income city, we find that a 1% increase in density in per capita and year terms is associated with a $1,400 increase in wage and a $2,426 increase in rent. The decrease in real wage net of taxes of $1,712 is partially compensated for by an aggregate amenity effect of $1,056 and there is a positive external welfare effect of $291. Density has important positive amenity and resource implications, but also appears to create a scarcity rent, which harms renters and first-time buyers.