Regulation and Housing Supply

78 Pages Posted: 6 Oct 2014

See all articles by Joseph Gyourko

Joseph Gyourko

University of Pennsylvania - Real Estate Department; National Bureau of Economic Research (NBER)

Raven Molloy

Board of Governors of the Federal Reserve System

Date Written: October 2014

Abstract

A wide array of local government regulations influences the amount, location, and shape of residential development. In this chapter, we review the literature on the causes and effects of this type of regulation. We begin with a discussion of how researchers measure regulation empirically, which highlights the variety of methods that are used to constrain development. Many theories have been developed to explain why regulation arises, including the role of homeowners in the local political process, the influence of historical density, and the fiscal and exclusionary motives for zoning. As for the effects of regulation, most studies have found substantial effects on the housing market. In particular, regulation appears to raise house prices, reduce construction, reduce the elasticity of housing supply, and alter urban form. Other research has found that regulation influences local labor markets and household sorting across communities. Finally, we discuss the welfare implications of regulation. Although some specific rules clearly mitigate negative externalities, the benefits of more general forms of regulation are very difficult to quantify. On balance, a few recent studies suggest that the overall efficiency losses from binding constraints on residential development could be quite large.

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Suggested Citation

Gyourko, Joseph E. and Molloy, Raven, Regulation and Housing Supply (October 2014). NBER Working Paper No. w20536. Available at SSRN: https://ssrn.com/abstract=2505836

Joseph E. Gyourko (Contact Author)

University of Pennsylvania - Real Estate Department ( email )

Philadelphia, PA 19104-6330
United States
215-898-3003 (Phone)
215-573-2220 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Raven Molloy

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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