Not in my neighbour’s back yard? Laneway homes and neighbours’ property values

Abstract

Single-family zoning is often defended as necessary to preserve neighbourhood amenities, but it is also blamed for making housing less affordable by constraining supply. In 2009, the City of Vancouver rezoned 95% of single-family areas to allow small accessory dwelling units (ADUs) or “laneway homes” behind residential structures. The goal was to increase rental housing supply with minimal disruption to rezoned neighbourhoods. We exploit this regulatory change to estimate the magnitude of externalities onto nearby units from increases in density. We find that even this “gentle” densification negatively affects neighbouring properties. This negative spillover is strongest for higher-valued properties and non-existent for median and lower-valued homes. Our findings illustrate that the costs and benefits of added density depend importantly on neighbourhood type.