| Environmental
Regulations and the Housing Market: A Review of the Literature
Katherine A. Kiel
College of the Holy Cross
Department of Economics
Environmental regulations in the United States are intended
to improve the quality of
the environment; preserve ecosystems, including wildlife;
and protect human health.
This article considers the impact of regulations such as the
Clean Air Act Amendments;
the Clean Water Act; the Comprehensive Environmental Response,
Compensation,
and Liability Act; the Endangered Species Act; the National
Environmental Policy
Act; and state and local regulations (including “smart
growth” controls) on the U.S.
housing market. The extent of the impacts could be measured
by looking at changes
in house prices and the quantity of housing available.
Whether or not environmental regulations are placed directly
on the suppliers of
housing, it is possible that these regulations will have an
impact on the housing market.
Environmental laws can impact the supply of land, a key input
in the production
of housing. Laws can also change the prices of other inputs
into the construction of
housing (for example, lumber) and can affect the supply of
housing in that way.
Laws can impact the supply of housing if they increase the
amount of time necessary
to build housing units or if they increase the possibility
of litigation faced by housing
developers. On the other hand, if the regulations are effective,
they can impact the
demand for housing by changing the quality of available housing.
All these effects
can lead to changes in both the price and the quantity of
housing in the market.
The academic literature has focused on the increase in the
demand for housing due
to improvements in environmental quality. Very few studies
attempt to estimate the
impact on the supply of land or housing. Some researchers
examine the issue by
interviewing developers and public officials and asking for
estimates of cost impacts
(for example, James and Muller, 1977). Others use statistical
techniques to control
for factors that impact sales prices so that the effect of
the regulations can be more
clearly seen (for example, Frech and Lafferty, 1984). Generally,
these studies find
that regulations restricting possible uses of undeveloped
land lead to decreases in
the prices of that land (for example, Guttery, Poe, and Sirmans,
2000), and land near
restricted areas can increase in value due to increased demand
(for example, Beaton
and Pollock, 1992).
To better understand the impact of environmental regulations
on the housing market,
research must be extended in several directions. Studies that
use statistical techniques
to examine the housing market both before and after regulations
are put in place are
necessary. Although the data requirements of such studies
are large, the results will
estimate the extent of the increase in prices due solely to
the regulations. If policy
analysts want to know whether the increase is due to a decrease
in housing supply,
an increase in housing demand, or a combination of the two,
the results from such
studies can be used in a “second stage” estimation
of separate housing supply and
demand equations.
Research also needs to estimate the amount of land removed
from the housing market
due to environmental restrictions. Landis (2001) has undertaken
such a study in California;
his work should be extended to other areas. He demonstrated
the importance
of estimating how much of the land that is removed would be
“developable,” as well
as how the removal impacts the ability of the area under study
to grow.
Finally, research should examine the general equilibrium impacts
of environmental
laws on all markets because the housing market also is affected
by the labor market.
Riddel (2001) estimated this type of model and showed that
open space purchases in
Colorado increased the demand for housing by more than they
reduced the supply of
housing.
If regulations lead to increases in housing prices that make
housing unaffordable,
the next step would be to consider how to make the regulations
less costly or how to
subsidize those most affected by the price increases.
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