disadvantages lower income groups, as they have to compete for land in the same locations as more affluent groups. The issue in practice is not to do away with regulation and planning, as unplanned development implies large costs borne by both the city and its inhabitants. Instead, there is a need to review the extent to which supply is restricted and whether these restrictions cause significant price distortions or welfare effects.

The overall net welfare effects of regulations can be either positive or negative. Angel’s (2011) study of urban expansion emphasizes the cost of minimal regulation and not planning for growth in developing country cities. He describes how Bangkok was once considered a model of efficient land and housing markets, with its flexible and minimal regulations that allowed the private sector to build affordable housing for a large segment of the low-income population. The city’s failure to keep up with private building activity by ensuring space for an adequate system of secondary roads and securing public rights of way resulted in high welfare costs from severe congestion and pollution.

Most studies of regulations have focused on their negative impacts. Cheshire and Sheppard’s (2002) study of the welfare impacts of planning regulations indicates that the supply restrictions imposed by both the greenbelt boundary and the amount of land zoned for residential development in Reading, UK, are equivalent to a 4 percent income tax. While they do not argue for a removal of regulations, they suggest that relaxing the restrictions, particularly pushing out the greenbelt boundary, would have a positive welfare effect. Similarly, analysis by Bertaud and Brueckner (2003) indicates that restrictions imposed by a low uniform FAR in central areas of Bangalore result in a welfare loss of 3–6 percent of income in additional commuting costs from suburban areas. At the same time, the draconian FAR regulations limit the financial viability of redeveloping accessible central city locations where older structures were built to much higher FAR values. FAR limits, while not inherently problematic, should fit the market context and the locations where they are applied and serve as a guide rather than as a binding constraint. Moreover, once values are set, they must be periodically reviewed and adjusted to reflect changing demand in different locations, and infrastructure adjustments can then be made accordingly.

Regulations can affect the pace and affordability of housing supply through a variety of means. They can exclude low-income groups if consumption standards (minimum lot sizes, height restrictions, and so on) are set at levels significantly beyond what this population can afford. Often not recognized in setting minimum standards at such levels is that, in the absence of subsidies, low-income groups will be forced to double up or find informal housing. At the same time, restrictive standards that limit supply and increase prices drive up the number and size of households requiring subsidies, which makes it difficult for governments to develop sustainable or equitable subsidy policies.

Regulations also affect construction costs by creating lengthy approval processes, driving formal developers to focus on the high-end market, where profits are more certain, or to the informal 22