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Housing Productivity and the Social Cost of Land-Use Restrictions

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  • 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. 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.

Suggested Citation

  • David Albouy & Gabriel Ehrlich, 2012. "Housing Productivity and the Social Cost of Land-Use Restrictions," NBER Working Papers 18110, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:18110
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Gabriel M. Ahlfeldt & Nancy Holman, 2015. "Distinctively Different: A New Approach to Valuing Architectural Amenities," SERC Discussion Papers 0171, Spatial Economics Research Centre, LSE.
    2. Konstantin Büchel und Maximilian von Ehrlich, 2016. "Cities and the Structure of Social Interactions: Evidence from Mobile Phone Data," Diskussionsschriften dp1608, Universitaet Bern, Departement Volkswirtschaft.
    3. Ganong, Peter & Shoag, Daniel, 2012. "Why Has Regional Convergence in the U.S. Stopped?," Working Paper Series rwp12-028, Harvard University, John F. Kennedy School of Government.
    4. Nichols, Joseph B. & Oliner, Stephen D. & Mulhall, Michael R., 2013. "Swings in commercial and residential land prices in the United States," Journal of Urban Economics, Elsevier, vol. 73(1), pages 57-76.
    5. David Albouy & Arash Farahani, 2017. "Valuing Public Goods More Generally: The Case of Infrastructure," Upjohn Working Papers and Journal Articles 17-272, W.E. Upjohn Institute for Employment Research.
    6. Gabriel Ahlfeldt & Daniel McMillen, 2014. "New Estimates of the Elasticity of Substitution of Land for Capital," ERSA conference papers ersa14p108, European Regional Science Association.
    7. Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2012. "The Cost of Agglomeration: Land Prices in Cities," Sciences Po publications 9240, Sciences Po.
    8. Combes, Pierre-Philippe & Duranton, Gilles & Gobillon, Laurent, 2012. "The Costs of Agglomeration: Land Prices in French Cities," IZA Discussion Papers 7027, Institute for the Study of Labor (IZA).
    9. Lee, Juhee & Cho, Seong-Hoon & Kim, Taeyoung & Yu, Tun-Hsiang & Armsworth, Paul Robert, 2015. "Exploring tax-based payment approach for forest carbon sequestration," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196873, Southern Agricultural Economics Association.
    10. David Albouy & Bryan Stuart, 2014. "Urban Population and Amenities: The Neoclassical Model of Location," NBER Working Papers 19919, National Bureau of Economic Research, Inc.
    11. Narayan Bulusu & Jefferson Duarte & Carles Vergara-Alert, 2013. "Booms and Busts in House Prices Explained by Constraints in Housing Supply," Staff Working Papers 13-18, Bank of Canada.
    12. Ganong, Peter Nathan & Shoag, Daniel W, 2012. "Why Has Regional Convergence in the U.S. Stopped?," Scholarly Articles 9361381, Harvard Kennedy School of Government.
    13. Duranton, Gilles & Puga, Diego, 2015. "Urban Land Use," Handbook of Regional and Urban Economics, Elsevier.
    14. Nagamachi, Kohei, 2015. "A Simple Model of Functional Specialization of Cities," MPRA Paper 61497, University Library of Munich, Germany.
    15. David Albouy & Gabriel Ehrlich & Yingyi Liu, 2016. "Housing Demand, Cost-of-Living Inequality, and the Affordability Crisis," NBER Working Papers 22816, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R52 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Land Use and Other Regulations

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