Unintended effects of regional planning in Germany

Abstract

Regional planning plays a central role in Germany's multi-level system for managing regional and local land use, giving concrete shape to state planning specifications and providing municipalities with binding guidelines for urban land use planning. While planning proponents affirm the positive effects of regional planning such as reduced land consumption and less urban sprawl, representatives of neoclassical urban economic theory see regulation as the reason for lower economic growth. With the help of fixed effects panel models, we examine the impact of regional planning regulations on the housing market, migration and prices in Germany's growing labor market regions. We conclude that regional planning regulations reduce construction activity. However, this effect is relatively small and does not raise building land prices and rents. Nevertheless, results indicate that the lower level of construction activity—due to strict regional planning regulations—contributes to weaker overall population growth. Based on our results, we cannot confirm important predictions of neoclassical urban theory regarding the effects of regional planning regulations on labor migration patterns and downstream processes for Germany.