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Working Papers

The Impact of Building Restrictions on Housing Affordability

Working paper #442
Edward L. Glaeser and Joseph Gyourko

Most parts of the United States are not facing a widespread crisis in housing affordability. House prices approximate the cost of construction, and in some regions, they are below physical construction costs. We identify a limited set of markets, especially in New York City and California, where housing prices diverge substantially from new construction costs. The evidence suggests that zoning and other land-use controls are responsible for abnormally high prices in these places, as there are other parts of the country experiencing high demand without high and growing prices. Policy advocates interested in reducing housing costs should examine local regulations because reducing the implied zoning tax on new construction could have large effects on housing prices. Perhaps the impact of the regulatory tax on housing prices is local regulation’s strongest political appeal. Weaker rules could cause property values to fall, hardly the ideal platform for political aspirants. If reforms are to be politically feasible, losers from reductions of regulatory burdens on hous-ing development will have to be compensated.

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