Land Use Deregulation and Housing Supply Under Institutional Frictions

Abstract

This paper examines whether land use deregulation increases housing supply when there are additional institutional frictions, such as slow updation of ownership records and unclear titles. India's urban land ceiling (ULC) laws, which put ceiling limits on privately owned vacant land in the largest urban centers, were repealed during the 2000s. Using a difference-in-difference approach, with a panel of over 200 cities, I find that the reform did not lead to an expected formal residential housing supply growth. This is partly because of disputes in ownership rights over vacant parcels. The disputes led to legal battles between governments and individual owners, thereby, freezing formal construction on vacant land. I find that, after the repeal, the number of land-related legal proceedings in ULC-enacting cities was almost six times as high compared to the other cities where ULC was never enacted. The empirical findings are consistent with the analytical implications of a monocentric model. More broadly, the findings underscore the role of institutional frictions in impeding or delaying the benefits of deregulation.

Keywords: Land use, regulation, housing, institutional frictions, property rights

JEL Classification: O17, P48, R14, R31, R52