Urban planning policies and the cost of living in large cities

Using a numerical simulation model to provide a sterile laboratory for studying the long-run effects of both land use and transportation policies, this paper offers two main findings. First, we argue that land use regulations have relatively small effects on the cost of labor in large cities due to location substitution by housing producers and households. Second, we show the compensating differential paid to workers in growing cities is invariant with respect to land use regulation. In the long run, the vast majority of the costs of land use regulations are due to changes to the cost of commuting rather than housing. •Land use regulations have relatively small effects on the cost of labor in large cities due to location substitution.•The compensating differential paid to workers in growing cities is invariant with respect to land use regulation.•The majority of the costs of land use regulations are due to changes to the cost of commuting costs rather than housing.•Effects of land use regulations on the cost of labor can be offset through transportation improvements.