Internalizing Neighborhood Externalities: The Effect of Subdivision Size and Zoning on Residential Lot Prices

Though land-development regulations potentially control neighborhood externalities, the developer of a residential subdivision contributes to that control by developing a larger parcel of land. This paper reports estimates of the effect of parcel size on the sale price of developed building lots. The results indicate that adding an acre to the median development increases lot prices by about 3%. Amenities appear to be income normal, and the return to parcel size is greater in unincorporated areas, perhaps due to less intensive governmental control over externalities.