Transcript Regulation and the Rise of Housing Prices Bryce A. Ward Harvard University Fact: Substantial Price Growth in Several Housing Markets OFHEO Repeat Sales Price Indices 1980-2004,

Regulation and the Rise of
Housing Prices
Bryce A. Ward
Harvard University
Fact: Substantial Price Growth in
Several Housing Markets
OFHEO Repeat Sales Price Indices
1980-2004, CPI Adjusted
•
•
•
•
•
Nassau-Suffolk (NY)
Boston Quincy (MA)
Cambridge-Newton (MA)
Essex County (MA)
Salinas (CA)
251 %
210 %
180%
179%
162%
Why Have Prices Increased?
Blue=Prices, Red=Permits
• Higher Demand?
35000
250
30000
200
25000
150
20000
HPI
Permits
15000
100
10000
50
5000
0
0
1960
1965
1970
1975
1980
1990
1995
2000
Year
OFHEO HPI
Permits
Boston
35000
250
30000
200
Total Permits
– Prices increase when
Supply doesn’t
respond to growth in
Demand
1985
25000
150
20000
15000
100
10000
50
5000
0
0
1960
1965
1970
1975
1980
1985
Year
1990
1995
2000
House Price Index I
– Demand growth
matters, but high
demand needn’t =>
Higher Prices
Las Vegas
3 Reasons Supply Might Not
Respond to Higher Prices
• Higher Construction Costs
• No More Land
• Regulations
Do Higher Construction Costs
Explain Higher Prices?
1
Have High Price Areas Run Out of
Land?
CHELSEA
REVERE
.6
.8
HULL
MALDEN
Q UINCY
WO
RCEST
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W
ATERT O W N
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ASHLAND
LAW RENCE
CAMBRIDG E
0
.2
MEDFO
W O BURN
EVERET T
LYNN RD
PEABO
DY
SW AMPSCO
TT
W INCHEST
ER
SHREW NAT
SBURY
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ALTHAM
ST
OLPH
NEHAM
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ICK
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EYMO
UT H
SAUGUS
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RT
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RAFT
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O
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NO
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BRIDG
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EW
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AT
ER
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HO
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F
K
RAMING
HAM
MERRIMAC
DUXBURY
PEMBRO
KE
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BELLING
MILLBURY
ET
OSCITUAT
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HAM
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H
BO
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UGH
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G
SUDBURY
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MEDFIELD
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XFO
RD
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SEEKO
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NK
HO
LLIST
O NRDIELD
LIT
T
LET
OW
N
AYLAND
PEPPERELL
LYNNF
MENDO
GUPT
ROT
OUXBRIDG
N
N
SHIRLEY
HINGHAM
HANSO
E
N
DEDHAM
SALISBURY
LAKEVILLE
ON
CARLISLE
ST
HALIFAX
O
W
HO
LDEN
MANCHEST
ER
W
EST
CO
O
HASSET
N
RO
WLEY
LEICEST
ER
IPSWICH
BELMO NT
DO
UGLAS
ST
W
ERLING
EST
NEW
BURY
SUT
TO
N
NO
RWELL
CO
NCO
RD
DO
VER
W
ENHAM
SW
ANSEA
HAMILT
O
N
LUNENBURG
T
O
PSF
EST
IELD
BO
O
N
REHOBO
T
H
DUNST
ABLE
CARVER
T
O
DIG
HT
O
NW
MIDDLEBO
LINCOLN
ROUG
H YLST
AVO
NER
BO
FNEWBURY
REET
YLST
O
O
WN
N
W
EST
BRIDG
EW
AT
BO
N
PAXTO
BERLIN
O
NWNSEND
HARVARD
LANCAST
SHERBO
ESSEX
ER
RN
PRINCETPLYMPT
O NLTO
-4
-2
0
Log Housing Density 1980
T otal Permits 1980-2002 per Acre
2
Fitted values
Is it Regulation?
• Regulations reduce new construction (acts as a tax, but
a really bad tax)
• Several studies that compare communities with more
stringent regulations to similar communities with less
regulations find that more regulation => less new
construction
• E.g., Glaeser and Ward (2006) examination of 187
communities in Boston Ares finds:
– .25 acre increase in average minimum lot size => 9% fewer
houses in 2000, 10% fewer permits between 1980-2002
– Wetlands, Subdivision, and Septic Rules => 10-20% reduction in
annual permits
Regulations Have Become More
Common in Many Areas
Fraction of Communities in Boston Area with Wetlands,
Septic, Subdivision, and Cluster Provisions, 1975-2004
1.20
1.00
0.80
0.60
0.40
0.20
Wetbylaw
SeptRule
Subdrule
Cluster
20
04
20
03
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
90
19
89
19
88
19
87
19
86
19
85
19
84
19
83
19
82
19
81
19
80
19
79
19
78
19
77
19
76
19
75
0.00
Why Have Regulations Become
More Common?
• Better Organized/More Powerful
Homeowners
• More Incentives for Homeowners to Block
Development (e.g., bigger negative effects
of development or higher valuation of low
density)
• More Sympathetic Judges
• Developers w/ Less Power
Conclusion
• Regulations Contribute to Housing UnAffordability
• Regulations Differ a Great Deal Across
Space => No Simple Solutions
– Improve Incentives
– Reduce Uncertainty
– Better Internalize Externalities