《Land use regulation and new construction》.pdfVIP

Regional Science and Urban Economics 30 (2000) 639–662 www.elsevier.nl/locate/econbase Land use regulation and new construction Christopher J. Mayera , *, C. Tsuriel Somervilleb a The Wharton School of Business, University of Pennsylvania, 314 Lauder-Fischer Hall, 256 South 37th Street, Philadelphia, PA 19104-6330, USA bFaculty of Commerce and Business Administration, University of British Columbia, 2053 Main Mall, Vancouver, BC V6 T 1Z2, Canada Received 7 October 1998; received in revised form 15 June 2000; accepted 10 July 2000 Abstract This paper describes the relationship between land use regulation and residential construction. We characterize regulations as either adding explicit costs, uncertainty, or delays to the development process. The theoretical framework suggests that the effects on new construction vary by the type of regulation. Using quarterly data from a panel of 44 U.S. metropolitan areas between 1985 and 1996, we find that land use regulation lowers the level of the steady-state of new construction. Our estimates suggest that metropolitan areas with more extensive regulation can have up to 45 percent fewer starts and price elasticities that are more than 20 percent lower than those in less-regulated markets. One implication of regulations that lengthen the development process is that the short- and long-run effects of demand shocks will vary relative to conditions in markets without such delays. We find support for this observation in the data. As well, we find other differences by type of regulation: development or impact fees have relatively little impact on new construction, but regulations that lengthen t