Market Power in Housing Markets: Evidence from a Tax on Construction Density (Alvarez & Biderman, 2026)

Summary

"Market Power in Housing Markets: Evidence from a Tax on Construction Density," by Luis Antonio F. Alvarez and Ciro Biderman, is a Lincoln Institute of Land Policy Working Paper (August 2026). It measures builder market power in São Paulo, Brazil, using a genuinely Georgist-adjacent identification strategy: kinks in the tax rate schedule of Outorga Onerosa sobre o Direito de Construir (a land value capture instrument that charges developers for construction density above baseline zoning limits) to break the standard textbook relationship between price and marginal cost.

Method and Findings

Because the density tax's rate schedule creates predictable kinks in a builder's marginal cost as density rises, the authors can identify the wedge between price and marginal cost — the markup — directly from how builders bunch their density choices around those kinks. They find São Paulo builders maintain an average markup of 45% above marginal cost, with markups substantially higher in central areas than in more competitive suburban markets. The paper builds a general equilibrium model from these estimates to assess how different density-tax policy designs affect housing supply and consumer welfare.

Relation to the Georgist Case

This is adjacent to, rather than squarely within, the wiki's core economic rent tradition — it is fundamentally an industrial-organization study of builder market power, not a land-rent study — but it matters for Georgist policy design in two ways. First, it uses a land-value-capture instrument (the Outorga Onerosa density charge) as its identification tool, showing these instruments can double as a source of real economic evidence, not just revenue. Second, and more importantly, it complicates a simple "deregulate supply and prices fall" story: if builders in constrained central markets already hold meaningful market power, relaxing density limits alone may not pass through fully to lower prices unless that market power is also addressed — a genuine complication for the wiki's housing supply coverage that a pure land-rent framing does not resolve on its own.

Nuances and Limits

• An industrial-organization study of construction markets, not land rent. Readers should not treat this as evidence about land value taxation directly; its relevance is adjacent (developer market power as a complication for housing-supply policy) rather than core Georgist evidence.
• São Paulo-specific institutional context. The Outorga Onerosa instrument and Brazilian construction-market structure are specific to this setting; the 45% markup figure should not be read as a general estimate of builder market power elsewhere.
• Full landing-page content read directly (B-claim). The paper's working-paper page (not paywalled) was read directly for its methodology and headline findings; the full general equilibrium model and welfare results were not independently extracted.

Bears On

• Concept: Land Value Capture — a novel use of an LVC instrument's own rate-schedule kinks as an identification strategy for measuring builder market power.
• Objection: Planning Restrictions Cause High Prices — complicates a pure supply-restriction story: developer market power in constrained markets may blunt the price effect of deregulation alone.
• Research: De Loecker, Eeckhout & Unger: The Rise of Market Power — a housing-sector-specific parallel to the wiki's general corporate-markup evidence.

See Also

• Land Value Capture
• Objection: Planning Restrictions Cause High Prices
• De Loecker, Eeckhout & Unger: The Rise of Market Power
• Residual Land Valuation

Sources

1. Luis Antonio F. Alvarez & Ciro Biderman (2026), "Market Power in Housing Markets: Evidence from a Tax on Construction Density," Lincoln Institute of Land Policy Working Paper, 32 pp., published August 2026. lincolninst.edu — fetched and read directly 2026-08-30 (not paywalled) — used for the Outorga Onerosa kink-based identification strategy, the 45%-markup finding, and the central-vs-suburban markup comparison (B-claim; working-paper landing page and summary read, full model and welfare results not independently extracted).