Working Paper: NBER ID: w18110
Authors: David Albouy; Gabriel Ehrlich
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.
Keywords: Housing Productivity; Land-Use Restrictions; Social Cost
JEL Codes: D24; R31; R52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Regulatory restrictions (G18) | Increase in housing prices relative to input costs (R31) |
| Regulatory restrictions (G18) | Decrease in housing productivity (R31) |
| Geographic constraints (R12) | Increase in housing prices relative to input costs (R31) |
| Geographic constraints (R12) | Decrease in housing productivity (R31) |
| Land-use restrictions (R52) | Increase in housing prices relative to local wages (R31) |
| Regulatory restrictions (G18) | Decrease in social welfare (D69) |
| Geographic constraints (R12) | Decrease in social welfare (D69) |
| Land-use restrictions (R52) | Decrease in social welfare (D69) |