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The Impact of Regulations on Housing Prices: A Comprehensive Analysis

This study delves into how regulations influence the rise of housing prices using data from various housing markets. It explores the correlation between regulations, construction costs, land availability, and housing affordability, providing insights into the complex factors affecting housing prices.

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The Impact of Regulations on Housing Prices: A Comprehensive Analysis

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  1. Regulation and the Rise of Housing Prices Bryce A. Ward Harvard University

  2. 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%

  3. 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

  4. 3 Reasons Supply Might Not Respond to Higher Prices • Higher Construction Costs • No More Land • Regulations

  5. Do Higher Construction Costs Explain Higher Prices?

  6. Have High Price Areas Run Out of Land?

  7. 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

  8. Regulations Have Become More Common in Many Areas

  9. 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

  10. 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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