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Regulation and the Rise of Housing Prices Bryce A. Ward Harvard University Fact: Substantial Price Growth in Several Housing Markets OFHEO Repeat Sales Price Indices 1980-2004, CPI Adjusted Nassau-Suffolk (NY) 251 % Boston Quincy (MA) 210 % Cambridge-Newton (MA) 180%

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regulation and the rise of housing prices

Regulation and the Rise of Housing Prices

Bryce A. Ward

Harvard University

fact substantial price growth in several housing markets
Fact: Substantial Price Growth in Several Housing Markets

OFHEO Repeat Sales Price Indices

1980-2004, CPI Adjusted

  • Nassau-Suffolk (NY) 251 %
  • Boston Quincy (MA) 210 %
  • Cambridge-Newton (MA) 180%
  • Essex County (MA) 179%
  • Salinas (CA) 162%
why have prices increased
Why Have Prices Increased?

Blue=Prices, Red=Permits

  • Higher Demand?
    • Demand growth matters, but high demand needn’t => Higher Prices
    • Prices increase when Supply doesn’t respond to growth in Demand
3 reasons supply might not respond to higher prices
3 Reasons Supply Might Not Respond to Higher Prices
  • Higher Construction Costs
  • No More Land
  • Regulations
is it regulation
Is it Regulation?
  • Regulations reduce new construction (acts as a tax, but a really bad tax)
  • Several studies that compare communities with more stringent regulations to similar communities with less regulations find that more regulation => less new construction
  • E.g., Glaeser and Ward (2006) examination of 187 communities in Boston Ares finds:
    • .25 acre increase in average minimum lot size => 9% fewer houses in 2000, 10% fewer permits between 1980-2002
    • Wetlands, Subdivision, and Septic Rules => 10-20% reduction in annual permits
why have regulations become more common
Why Have Regulations Become More Common?
  • Better Organized/More Powerful Homeowners
  • More Incentives for Homeowners to Block Development (e.g., bigger negative effects of development or higher valuation of low density)
  • More Sympathetic Judges
  • Developers w/ Less Power
conclusion
Conclusion
  • Regulations Contribute to Housing Un-Affordability
  • Regulations Differ a Great Deal Across Space => No Simple Solutions
    • Improve Incentives
    • Reduce Uncertainty
    • Better Internalize Externalities
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