Study: Bureaucracy Restricts Housing Supply

Ralph McLaughlin explains a recent study released by Trulia:

We studied the rate of homebuilding and the market prices for the nation’s biggest metros during the last 20 years to determine how housing policy affected what we economists call “elasticity” – simply put: how much new housing is built relative to demand. Markets with greater elasticity build more housing relative to price changes than markets with lower elasticity.

The study found "that the rate at which the nation’s housing stock has grown relative to demand is low and that while elasticity has fluctuated during the last 30 years, builders are providing less housing now as prices rise than they have in the past."

The study also debunks the idea that land use regulation like zoning is responsible for the lack of supply in many areas. "[Trulia's] research finds that local bureaucracy, measured by building approval delays, affect housing supply elasticity rather than restrictive zoning," according to Mclaughlin.

The elasticity concept provides a lot of analysis, including a ranking of the elasticity of specific markets around the country. Las Vegas, according to the study, has been the most elastic hosuing market in the United States for the past 20 years. "Other relatively elastic markets in the U.S. include Raleigh-Durham-Chapel Hill, Albuquerque, Charlotte and Atlanta where supply elasticity ranges from 0.77 to 0.82," according to Mclaughlin. On the other side of that equation, New Orleans has been the least elastic market for the last 20 years.