Effects of Land Use Regulation on the Price of Housing:
What Do We Know?
What Can We Learn?
John M. Quigley
University of California, Berkeley
Larry A. Rosenthal
University of California, Berkeley
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
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
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
The literature as a whole also fails to address key empirical
challenges. First, most
studies ignore the “endogeneity” of regulation
and price (for example, a statistical
association may show regulatory effect or may just show that
wealthier, more expensive
communities have stronger tastes for such regulation). Second,
research tends not to recognize the complexity of local policymaking
and regulatory behavior. For
example, enactments promoting growth and development, often
present in the same
jurisdictions where zoning restrictions are observed, are
rarely measured or analyzed.
Third, regulatory surveys are administered sparsely and infrequently.
are often forced to rely on outdated land use proxies and
static observations of housing
price movements. Fourth, few studies utilize sophisticated
price indexes, such as those
measuring repeat sales of individual properties. Such methods
correct for well-known
biases in price means and medians typically reported.
An agenda for future research in the area of regulatory effects
on price should address
these shortcomings and generate replicable findings relevant
for policy reform efforts.
Ideally, a national regulatory census would measure at regular
enactments and implementation patterns. The most demanding
aspect of this task is
the development of standard regulatory indexes facilitating
comparison at the municipal
level and allowing for aggregation to the metropolitan and
state levels. Over
time, this survey should help describe changes in antecedent
law and resulting land
policy behavior so that time series encompassing regulation
and price can be compiled.
Existing building permit surveys can be adapted to facilitate
this effort. Regular
reporting from developers and builders regarding their experiences
with local regulatory
processes should then complement the census of laws and behaviors.
source of information would be a regularly refreshed, national
survey, mapping in some detail the ever-changing patterns
of residential and other
development in metropolitan areas.
Early efforts to improve and expand research should focus
primarily on the deliberate,
painstaking development of better, more current data. When
better data are available,
the existing community of scholars will develop methods providing
tests of hypotheses about the link between regulation and
the well-being of housing