The Consequences of Land Use Regulation: Evidence from Boston

Over the past 30 years, eastern Massachusetts has seen a remarkable combination of rising home prices and declining supply of new homes. Edward L. Glaeser and Bryce A. Ward examine whether reductions in new supply reflect a real lack of land or a response to man-made restrictions on development.

2 minute read

October 25, 2006, 1:00 PM PDT

By Chris Steins @planetizen


From the Abstract:

Over the past 30 years, eastern Massachusetts has seen a remarkable combination of rising home prices and declining supply of new homes. The reductions in new supply don't appear to reflect a real lack of land, but instead reflect a response to man-made restrictions on development. In this paper, we examine the land-use regulations in greater Boston. There has been a large increase in the number of new regulations, which differ widely over space. Few variables, other than historical density and abundant recreational water, reliably predict these regulations. High lot sizes and other regulations are associated with less construction. The regulations boost prices by decreasing density, but density levels seem far too low to maximize total land value.

From the conclusion:

"Over the last 25 years, greater Boston has seen a remarkable increase in housing prices and a decline in the number of new units. This change reflects increasingly restricted supply. The reduction in supply doesn't reflect an exogenous lack of land. There has been no significant increase in density levels associated with declining construction.

Development is greater in dense places. Lot sizes are increasing, not falling. The value of land when it extends an existing lot is not great. Instead, the decline in new construction and associated increase in price reflects increasing man-made barriers to new construction.

In this paper, we catalog the barriers to new construction. Minimum lot size is the most important of these barriers, but wetlands regulations and septic rules have also become increasingly tough. All barriers have all increased over time, but our ability to explain where they have been adopted is quite limited. The two most important explanatory variables are early twentieth century density patterns which correlate well with current minimum lot sizes and the presence of recreational water which explains water-related rules."

Thanks to Hugh Pavletich

Saturday, October 21, 2006 in Harvard Institute Of Economic Research

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