Regulation and the High Cost of Housing in California

This paper analyzes the effect of regulation governing land use and residential construction upon the course of housing prices in California. We explore the linkage between regulation and housing prices using a series of housing price indices that we estimate from the Public Use Microdata Samples (PUMS) of the 1990 and 2000 Census of Population and Housing as well as a detailed cross-sectional information on land use regulation and growth controls taken from a survey of California cities. We explore a number of avenues by which regulatory stringency may impact housing outcomes. First, we assess whether housing is more expensive in more regulated cities. Second, we assess whether growth in the city-level housing stock over the period of a decade depends on the degree of land-use regulation at the start of the decade. Finally, we estimate the price elasticity of housing supply for regulated and relatively unregulated cities. Our results suggest that current regulations have powerful effects on housing outcomes.

John M. Quigley and Steven Raphael

Institute of Business and Economic Research

December 2004

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