Housing Productivity and the Social Cost of Land-Use Restrictions

70 Pages Posted: 25 May 2012

See all articles by David Albouy

David Albouy

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Gabriel Ehrlich

University of Michigan at Ann Arbor

Date Written: May 2012

Abstract

We use metro-level variation in land and structural input prices to test and estimate a housing cost function with differences in local housing productivity. Both OLS and IV estimates imply that stringent regulatory and geographic restrictions substantially increase housing prices relative to land and construction input costs. The typical cost share of land is one-third, and substitution between inputs is inelastic. A disaggregated analysis of regulations finds state-level restrictions are costlier than local ones and provides a Regulatory Cost Index (RCI). Housing productivity falls with city population. Typical land-use restrictions impose costs that appear to exceed quality-of-life benefits, reducing welfare on net.

Suggested Citation

Albouy, David and Ehrlich, Gabriel, Housing Productivity and the Social Cost of Land-Use Restrictions (May 2012). NBER Working Paper No. w18110. Available at SSRN: https://ssrn.com/abstract=2066406

David Albouy (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Gabriel Ehrlich

University of Michigan at Ann Arbor ( email )

110 Tappan Hall
855 S. University Ave
Ann Arbor, MI 48109
United States

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