NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Housing Productivity and the Social Cost of Land-Use Restrictions

David Albouy, Gabriel Ehrlich

NBER Working Paper No. 18110
Issued in May 2012, Revised in December 2017
NBER Program(s):Labor Studies, Public Economics

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. Conditioning on housing demand, OLS and IV estimates imply that stringent regulatory and geographic restrictions increase housing prices relative to input costs substantially. 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 costliest, 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.

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Document Object Identifier (DOI): 10.3386/w18110

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