What is the effect of zoning rules that prohibit building on land?

Zoning rules that prohibit building on land have a significant effect on land value, primarily because these regulations limit the use and potential development of the property. When land cannot be developed or used to its fullest potential due to restrictive zoning, it can lead to a decrease in demand for that land among developers and investors. This reduced interest typically causes the market value of the land to decline, as its utility is lessened.

Prohibitive zoning can also generate a perception that the land is less desirable, further driving down its value. In some cases, the possibility of future growth and development is a significant factor that contributes to land value; when land is restricted from development, this potential is effectively removed, leading to depreciation in value.

Understanding this dynamic is crucial in the context of urban planning, where zoning decisions are made not only to manage growth and development but also to influence economic factors such as land value.