A previous version of this working paper was originally published in September 2017

We study the effects of the California Coastal Act, one of the nation’s most stringent land-use regulations, on the price and rental income of multifamily housing. The Coastal Act applies to a narrow section of the California coast, allowing us to compare properties on either side of the jurisdictional boundary. The Coastal Act offers several advantages for measuring the effects of land-use regulations, including plausible exogeneity of the boundary location, which we confirm using historical data on boundary placement, and orthogonality of the boundary to other jurisdictional divisions. Extending previous studies, we decompose the effects of the regulation into a local effect, the net price effect of restrictions on the subject property and its immediate neighbors, and an external effect, the value of amenities generated by restrictions on all properties within the regulated area. Data on rental income are used to isolate the effect of restrictions on adjacent properties (the neighbor effect). Our analysis of multifamily housing prices reveals local and external effects of approximately +6% and +13%, respectively. The rent analysis indicates a zero neighbor effect. Together with the positive local effect on price, this suggests that the protections the Coastal Act affords property owners from undesirable development on adjacent properties have not yet resulted in material differences, but are expected to in the future. This interpretation is supported by additional evidence on building ages and assessed building and land values, and emphasizes important dynamic effects of land-use regulation.