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

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.

John M. Quigley and Larry A. Rosenthal

Journal of Policy Development and Research

2005

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