- Arguably, land use controls have a more widespread impact on the lives of ordinary Americans than any other regulation. These controls, typically imposed by localities, make housing more expensive and restrict the growth of America’s most successful metropolitan areas. These regulations have accreted over time with virtually no cost-benefit analysis. Restricting growth is often locally popular. Promoting affordability is hardly a financially attractive aim for someone who owns a home. Yet the maze of local land use controls imposes costs on outsiders, and on the American economy as a whole.
- Housing advocates often discuss affordability, which is defined by linking the cost of living to incomes. But the regulatory approach on housing should compare housing prices to the Minimum Profitable Construction Cost, or MPPC. An unfettered construction market won’t magically reduce the price of purchasing lumber or plumbing. The best price outcome possible, without subsidies, is that prices hew more closely to the physical cost of building.
- The distribution of price to MPPC ratios shows a nation of extremes. Fully, 40 percent of the American Housing Survey homes are valued at 75 percent or less of their Minimum Profitable Production Cost. This finding is not that surprising. Most homes are old and we are comparing them to the cost of building new housing. Most used cars also sell for much less than the price of building a new car. Another 33 percent of homes are valued at between 75 percent and 125 percent of construction costs.
- But most productive parts of America are unaffordable. The National Association of Realtors data shows median sales prices over $1,000,000 in the San Jose metropolitan area and over $500,000 in Los Angeles. One tenth of American homes in 2013 were valued at more than double Minimum Profitable Production Costs, and assuredly the share is much higher today.
- Historically, when parts of America experienced outsized economic success, they built enormous amounts of housing. New housing allowed thousands of Americans to participate in the productivity of that locality. Between 1880 and 1910, bustling Chicago’s population grew by an average of 56,000 each year. Today, San Francisco is one of the great capitals of the information age, yet from 1980 to 2010, that city’s population grew by only 4200 people per year.
- How do we know that high housing costs have anything to do with artificial restrictions on supply? Perhaps the most compelling argument uses the tools of Economics 101. If demand alone drove prices, then we should expect to see places that have high costs also have high levels of construction.
The reverse is true. Places that are expensive don’t build a lot and places that build a lot aren’t expensive. San Francisco and urban Honolulu have the highest ratios of prices to construction costs in our data, and these areas permitted little housing between 2000 and 2013. In our sample, Las Vegas was the biggest builder and it emerged from the crisis with home values far below construction costs.
- California builders have faced an onerous Environment Impact Review process since the 1972 Friends of Mammoth Case. When environmental rules prevent building in highly productive, highly restricted coastal California, homes get built elsewhere, like Las Vegas and Houston. Carbon emissions per household are lower in coastal California than elsewhere in the country, primarily because of a benign Mediterranean climate (Glaeser and Kahn, 2010). California’s land use restrictions don’t eliminate new construction, they merely move it elsewhere, so it isn’t enough to have a purely local perspective. In California’s case, preventing local construction for environmental reasons only ends up increasing carbon emissions by pushing building to less salubrious climes.
I lose faith in essays when they say something completely untrue in the first paragraph. If you give up your credibility at the beginning you've forfited the game Land use regulation cost/benefit was the topic of at least one guest lecture a year when I was an economics student and several professors in the department had done work in the field. Do politicians listen? Not much...These regulations have accreted over time with virtually no cost-benefit analysis.
I am willing to cut the author some slack for leaving out detail in the interest of space:These regulations have accreted over time with virtually no cost-benefit analysis (except for vast quantities of analysis performed by academics interested in anticipating unintended consequences, the differences between intentions and outcomes, and the lessons of public choice theory, all of which made no difference because it was ignored by the regulators).
ctrl-f "quality of life" 0 of 0 ctrl-f "quality" The article assumes that the artificial restriction of supply is accidental, rather than intentional. Everything that follows is nonsense. People don't move into a home to maximize their marginal utility, they move there to live. And no. They don't want you building an 8-unit townhome next door, there are plenty of 8-unit townhomes elsewhere. Zoning laws aren't a mistake, zoning laws exist to preserve the character of neighborhoods and those who own (OWN) within that neighborhood are entirely within their legal right to fight to preserve its character against those who merely wish to live there.We base our estimates on an “economy” quality home, and assume that builders in an unregulated market should expect to earn 17 percent over this purely physical cost of construction, which would have to cover other soft costs of construction including land assembly.
The article argues that zoning should be reformed to maximize marginal utility. Reality argues that maximization of marginal utility is not the function of zoning. I've watched you get all spun up over Kelo v. New London a couple times now. The article is on the side of eminent domain.
Not sure what you mean by "marginal utility," and the ctrl-f technique gives no leads. Utility for whom? Existing home owners, people shopping for a house, and developers all have different interests. The problem I see addressed, summarized in the second sentence, is that the most productive (and therefore desirable) locations have rules that strongly discourage new construction. Whatever the intent of these rules, one consequence is higher prices that make it hard for people to participate in the most productive areas.
They're also full. Building up costs more than building out. We've all flown over Vegas. It could continue, without exaggeration, for 50 miles in any direction.San Francisco and urban Honolulu have the highest ratios of prices to construction costs in our data, and these areas permitted little housing between 2000 and 2013.
In our sample, Las Vegas was the biggest builder and it emerged from the crisis with home values far below construction costs.
Looks like they considered the land scarcity angle. Albert Saiz’s (2011) work on geography and housing supply shows that where geography, like water and hills, constrains building, prices are higher. He also finds that measures of housing regulation predict less building and higher prices. But lack of land can’t be the whole story. Many expensive parts of America, like Middlesex County Massachusetts, have modest density levels and low levels of construction. Other areas, like Harris County, Texas, have higher density levels, higher construction rates and lower prices. Across Massachusetts towns, Glaeser and Ward (2009) found that there was more construction in places, like Chelsea and Revere, with higher initial density levels and modest prices. If land scarcity was the whole story, then we should expect houses on large lots to be extremely expensive in America’s high priced metropolitan areas. Yet typically, the willingness to pay for an extra acre of land is low, even in high cost areas. We should also expect apartments to cost roughly the cost of adding an extra story to a high-rise building, since growing up doesn’t require more land. Typically, Manhattan apartments are sold for far more than the engineering cost of growing up, which implies the power of regulatory constraints (Glaeser, Gyourko and Saks, 2005). 40 Percent of the Buildings in Manhattan Could Not Be Built Today "Because They Are Too Tall ... Or They Have Too Many Apartments ... Or Too Many Businesses ..."The primary alternative to the view that regulation is responsible for limiting supply and boosting prices is that some areas have a natural shortage of land.
Ah, so they did. I'm not sure that excuses their use of Vegas in the sentence I quoted, though. And Middlesex, for example, has plenty of cachet. Does it count as regulation if a lot of the families have been in the area for 200 years and are vehemently opposed to change? Neighborhood associations regulate, but every one is a bit different and I don't really know where those rules come from. Are they saying that demand is low, so supply is lower, so the price falls? I'm confused by those two sentences together. Houses on large lots near downtown aren't expensive? Or don't exist? How do we parse out the fact that money has fled from downtown neighborhoods in many major cities?If land scarcity was the whole story, then we should expect houses on large lots to be extremely expensive in America’s high priced metropolitan areas. Yet typically, the willingness to pay for an extra acre of land is low, even in high cost areas.