Not in My Back Yard: The Local Political Economy of Residential Land-Use Regulations

We provide evidence that local preferences for neighborhood characteristics play an important role in shaping the political economy of residential land-use regulations and their distributional consequences. We leverage a land-use regulation reform in Houston, TX that reduced the minimum lot size---permitting denser single-family housing---while allowing incumbent property owners on individual city blocks to opt out of the change and adopt higher alternative minimum lot sizes. Initially wealthier, whiter neighborhoods were more likely to opt out and adopt higher minimum lot sizes after the reform. Supply of denser housing increased in areas that did not opt out. We develop a model where incumbents set minimum lot size. Incumbents trade off potential gains from redevelopment and local spillovers from housing density. The local nature of block-level regulatory decisions allows us to distinguish between preferences for neighborhood density and alternative political economy motives for regulation. Model estimates reveal large, negative local externalities from density that vary across incumbent socio-economic groups. Our results suggest that local control can tailor regulation to heterogeneous incumbent preferences, possibly making reform more politically feasible. However, doing so will likely limit supply in areas where housing demand is the highest.