The Welfare Effects of Character Protections on Neighbourhoods*

Abstract

We extend the monocentric model to examine the effects of character protections on household welfare. Protections indirectly generate amenity values for residents but require floor area ratio (FAR) restrictions on housing development, presenting a trade-off between welfare-increasing amenities and welfare-decreasing floor space constraints. Welfare effects become negative when the associated FAR restrictions of character protections are sufficiently tight. This is more likely when protections apply to neighbourhoods that have high demand due to proximity to non-character amenities or employment locations. Calibrating the model to Auckland, we find negative welfare effects, equivalent to a reduction in representative household income of $391 to $1375 per year.