Regulation and Property Values: The High Cost of Monopoly

Housing prices are much higher in areas with more stringent regulation. Housing supply is much less responsive to economic incentives in areas with more stringent land use regulation. These analyses do not “prove” that the observed price increases are not justified by the control of externalities. But it seems difficult to imagine that externalities per se could be important enough to rationalize these large effects.
But there are several other types of externalities that can surely underly the restrictive regulations imposed: fiscal and social. If the potential residents of new housing or higher density housing would receive more in locally provided services than they would pay in local taxes, this new housing would produce a negative fiscal externality. The appropriate remedy would be to charge marginal residents appropriately for the services they consume[,] not to deny entry by regulation.

John M. Quigley

Institute of Business and Economic Research

August 2006

External Link