Yet another study in a long line of others provides evidence that land-use regulations restrict housing supply. A new paper identifies a correlation between land-use regulations in California cities and the growth rate for housing units. Kip Jackson finds that California zoning rules and other land-use restrictions not only reduce the growth rate of new housing stock, but a new regulation can actually be expected to reduce the existing stock of housing by 0.2% per year. This correlation is greatest when looking only at multifamily buildings, where each new restriction results in 6% fewer apartments built annually.
Kip uses panel data on California land-use regulations from 1970-1995. Researchers sent surveys to municipal planning departments to create a dataset including both the regulations in effect in each city and the year they were enacted. The panel dataset allows Kip to use two-way fixed effects. That means that his results control both for factors that affect housing growth in all cities at a given time and for factors that affect growth in a specific city over time.
This survey data makes it possible to study both the effects of the total quantity of rules along with the effects of specific rules. Kip finds that rules that are likely to make it more difficult to build in the future lead to an increase in building permits at the time they are implemented. For example, urban growth boundaries and rules that require a supermajority council vote to approve increased residential density spur current year housing permits. This increase is likely due to developers’ belief that building permits will become more difficult to obtain the longer the new regulation is in effect. He points out that some studies that fail to find a relationship between zoning and housing supply may find this null result because of rules that change the timing of development while reducing it over the long-term. Aggregate indexes of regulation across cities, such as the Wharton Residential Land Use Regulatory Index, can’t measure the changing effect that a rule has over time.
Kip’s approach of using panel data to study the effects of land-use regulations is similar to Ed Glaeser and Bryce Ward’s study of the Boston area. They similarly find that more regulations are associated with reduced residential construction. Unsurprisingly, Glaser and Ward find that this reduced housing supply contributes to higher prices.
This new evidence adds to the extensive body of work demonstrating that land-use regulations reduce the stock of housing relative to what we would see in a free market. It’s particularly important in California, home to some of the country’s most regulated cities and the cities where land-use liberalization could have huge potential benefits in terms of allowing more people to live in high-productivity places.
The purpose of land use regulation is to protect the value of existing development, housing in particular. Stable value long term is critical to financing. Standards for development tend to increase over time, in units and for developments. Developers pay for nothing. Any donations for infrastructure, rights-of-way, etc. are put into the unit price and financed at market rates. Home owners count on appreciating value and the system supports that trend. Owner occupied housing has always been favored, as such people have been considered more stable and community oriented. The U.S. has a housing stock that is primarily single-family detached, which is high maintenance and does not make good rental property, yet that is the stock the “urban vulnerability” fears, post WW-II, have generated in the auto-dependent suburban world. Planners can analyze all day. The 1974 “Costs of Sprawl” proved that suburban development was not cost-effective, but that did not lead to correction to an historic city-building approach. Densities for units and household size declined, so there are fewer and fewer people in any built-out area. The built-environment looks dense; each person needs an auto for most trips, yet these areas can’t support transit. Why the low density, automobile dependent suburbs in the U.S.? Urban Vulnerability-Fear of Nuclear Attack led to U.S. Policies to Disperse Population in the 1950’s-Oops, that’s Sprawl