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A New Measure of the Local Regulatory Environment for Housing Markets: The Wharton Residential Land Use Regulatory Index

Working paper #558
Joseph Gyourko, Albert Saiz and Anita A. Summers

The responses from a nationwide survey of residential land use regulation in over 2,600 communities across the U.S. are used to develop a series of indexes that capture the stringency of local regulatory environments. Factor analysis is used to combine the component indexes into a single, aggregate measure of regulatory constraint on development that allows us to rank areas by the degree of control over the residential land use environment. We call this measure the Wharton Residential Land Use Regulation Index (WRLURI).

Key stylized facts arising from the data include that there is a strong positive correlation across the subcomponents that make up our regulation index. Practically speaking, this means that highly (lightly) regulated places tend to be highly (lightly) regulated on virtually all the dimensions by which we measure regulatory stringency. Thus, there is no evidence that communities target specific items or issues to regulate. The stringency of regulation also is strongly positively correlated with measures of community wealth, so that it is the richer and more highly-educated places that have the most highly regulated land use environments. However, the stringency of regulation is weakly negatively correlated with population density. The fact that the densest communities are not the most highly regulated strongly suggests that the motivation for land use controls is not a fundamental scarcity in the sense that these places are ‘running out of land’.

We also describe what a typical land use regulatory environment looks like. The community with the average WRLURI value has two distinct entities such as a zoning commission, city council, or environmental review board that must approve any project requiring a zoning change. Some type of density control such as a minimum lot size requirement exists, but it is highly unlikely to be as stringent as a one acre minimum. The typical community now enforces some type of exactions requirements on developers, and there is a six month lag on average between application for a permit and permit issuance on a standard development project for the locality. More highly regulated places have more intense community and political involvement in the land use control process, are likely to have a one-acre lot size minimum in at least one neighborhood and some type of open space requirement, and have much longer permit review times. Many of the most highly regulated places in the country, which often are in New England, also practice some type of direct democracy, as reflected in town meetings at which zoning changes have to be put to a vote by the citizenry. The communities with the least-regulated residential building environments still have some type of controls in place (e.g., exactions now are virtually omnipresent and there is at least one board that must approve zoning changes and new construction), but their density restrictions are much less onerous, open space requirements are unlikely to be imposed, and the time lag between the request for and issuance of a building permit on a standard project is on the order of 90 days.

Geographically, the coastal states have the most highly regulated communities on average. Those in New England and the mid-Atlantic region are the most highly regulated, followed by those on the west coast (plus Hawaii). Southern and midwestern states in the interior of the country are the least regulated.
At the metropolitan area level, communities in the Boston, MA, and Providence, RI, areas are the most highly regulated on average. Towns in the Philadelphia, PA, San Francisco, CA, Seattle, WA, and Monmouth-Ocean, NJ, metropolitan areas also are much more highly regulated than the national average. Communities in the midwestern metropolitan areas of Kansas City, MO, Indianapolis, IN, and St. Louis, MO, have the most lightly regulated residential land use environments in the country, with the Atlanta, GA, and Chicago, IL, areas reflecting the national average in terms of our index.

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