Zoning: Externalities or Misallocation?

We study how residential-commercial zoning affects the allocation of urban space. Using property level data from Taipei and 34 U.S. metropolitan areas, we infer neighborhood-level zoning wedges from the allocation of residents, workers, and floor space. We find substantially greater dispersion in these wedges in U.S. cities than in Taipei, where mixed-use development is pervasive. The inferred wedges increase neighborhood specialization and reduce welfare. We then evaluate whether zoning is aligned with the neighborhood characteristics that would justify intervention. Although zoning is systematically related to comparative advantage, comparative advantage explains only a small fraction of the variation in zoning. The dominant effect of zoning in American cities is therefore not to promote efficient land use, but to increase the segregation of residential and commercial activity across neighborhoods.