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The Effects of Land-Use Regulation on the Price of Housing: What Do We Know? What Can We Learn?

  • Author(s): Quigley, John M.
  • Rosenthal, Larry A.
  • et al.
Abstract

Effective governance of residential development and housing markets poses difficult challenges for land regulators. In theory, excessive land restrictions limit the buildable supply, tilting construction toward lower densities and larger, more expensive homes. Often, local prerogative and regional need conflict, and policymakers must make tradeoffs carefully. When higher income incumbents control the political processes by which local planning and zoning decisions are made, regions can become less affordable as prices increase. Housing assistance programs meant to benefit lower income households could be frustrated by limits on density and other restrictions on the number and size of new units.

The empirical literature on the effects of regulation on housing prices varies widely in quality of research method and strength of result. A number of credible papers seem to bear out theoretical expectations. When local regulators effectively withdraw land from buildable supplies-whether under the rubric of "zoning," "growth management," or other regulation-the land factor and the finished product can become pricier. Caps on development, restrictive zoning limits on allowable densities, urban growth boundaries, and long permit-processing delays have all been associated with increased housing prices. The literature fails, however, to establish a strong, direct causal effect, if only because variations in both observed regulation and methodological precision frustrate sweeping generalizations. A substantial number of land use and growth control studies show little or no effect on price, implying that sometimes, local regulation is symbolic, ineffectual, or only weakly enforced.

The literature as a whole also fails to address key empirical challenges. First, most studies ignore the "endogeneity" of regulation and price (for example, a statistical association may show regulatory effect or may just show that wealthier, more expensive communities have stronger tastes for such regulation). Second, research tends not to recognize the complexity of local policymaking and regulatory behavior. For example, enactments promoting growth and development, often present in the same jurisdictions where zoning restrictions are observed, are rarely measured or analyzed. Third, regulatory surveys are administered sparsely and infrequently. Current studies are often forced to rely on outdated land use proxies and static observations of housing price movements. Fourth, few studies utilize sophisticated price indexes, such as those measuring repeat sales of individual properties. Such methods correct for well-known biases in price means and medians typically reported.

An agenda for future research in the area of regulatory effects on price should address these shortcomings and generate replicable findings relevant for policy reform efforts. Ideally, a national regulatory census would measure at regular intervals municipal enactments and implementation patterns. The most demanding aspect of this task is the development of standard regulatory indexes facilitating comparison at the municipal level and allowing for aggregation to the metropolitan and state levels. Over time, this survey should help describe changes in antecedent law and resulting land policy behavior so that time series encompassing regulation and price can be com_ piled. Existing building permit surveys can be adapted to facilitate this effort. Regular reporting from developers and builders regarding their experiences with local regulatory processes should then complement the census of laws and behaviors. An additional source of information would be a regularly refreshed, national land use survey, mapping in some detail the ever-changing patterns of residential and other development in metropolitan areas.

Early efforts to improve and expand research should focus primarily on the deliberate, painstaking development of better, more current data. When better data are available, the existing community of scholars will develop methods providing more reliable tests of hypotheses about the link between regulation and the well-being of housing consumers.

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