Quantifying the costs of land use regulation: Evidence from New Zealand
Land use regulations vary in the restrictions and enforcement that applies across time and space. That variation makes it difficult to determine when land use regulations hinder the flexibility of housing supply using a single time series method, so a range of approaches and country case studies may be most appropriate to test impacts. We use four methods to test for impacts of land use regulation in New Zealand and extend existing efforts by utilising unit record data on house sales and construction type. We find: (i) house prices outstrip construction prices in many New Zealand cities; (ii) land with a house is valued 4 and 9 times higher than land with no house attached; (iii) density and house prices are only weakly correlated; (iv) prices of apartments and townhouses are much higher than their construction costs. All four results suggest land use regulations play a material role in constraining housing supply, driving up house prices. Local geography, such as steep terrain, might matter, but relative price differentials between land with a house and land without a house suggest only a minor role for geography.
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