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Abstract

This paper sets up general equilibrium model of building heights, which can be used for determining the short- and long-run optimal (profit maximizing) heights at various locations in a city in the presence and in the absence of a maximum height limit respectively. This model is applied to Makkah (with a seasonal peak in housing demand due to pilgrimage) in Saudi Arabia. Welfare consequences of height deregulation on property owners (producers of housing) and on the permanent and temporary residents (consumers) are quantified. The basic conclusion is that the direct welfare cost of building height controls is relatively small