Jonathan Zasloff and I have published a paper about the housing market effects of Land use regulation . It has just been published in the mighty Journal of Housing Economics. In case you don’t subscribe to that journal, permit me to sketch why it interests us.
Urban economists such as Edward Glaeser and John Quigley have argued that housing regulation is a crucial determinant of why housing prices are high in cities such as San Francisco, Boston and New York City while they are low in unregulated areas such as Houston. In the regulated cities, population growth is slow while it is high in the unregulated cities (elastic housing supply). The challenge here for empiricists is how to measure the intensity of housing regulation. Now, it is certainly true that demand side factors (temperate climate) will bid up rents in San Francisco relative to Houston but such demand side factors would predict more population growth in San Francisco. The fact that we see slow population growth in the desirable coastal locations has nudged economists to think about why this is the case. Does regulation slow housing growth? Does regulation make coastal locations more desirable?
I had read Jonathan’s wise quotes in the New York Times about the California Boundary Zone. After reading that article, I asked Jonathan to work with me on this project.
This regulation is serious stuff for coastal housing markets. As reported in the New York Times, “Created by a ballot initiative three decades ago as the protector of the state’s 1,100-mile coast, the commission has long been a thorn in the side of developers, municipal governments and wealthy beachfront property owners, its dominion lacking in comparisons in other states.”
As a data nerd, I became quite excited about the possibility to use the Coastal Commission’s regulatory zone as a discrete measure of regulation. We know when the regulation started to bite (in the late 1970s) and we know the exact geography of where the regulatory line goes. Using GIS software, we were able to partition coastal communities such as Santa Monica into geographical areas just inside the line and geographical areas also in Santa Monica that lied just outside the regulatory boundary. We used two different data sets to document gentrification within the coastal boundary over time.
My favorite story for the new facts we have generated is that the Coastal Boundary Zone represents a commitment device. Rich guys know that if they buy coastal property that guys like me won’t be able to build new homes near them without facing huge amounts of red tape. This barrier to entry means that they can live in paradise without having the “middle class” crowd around them. This regulation induced buffer zone is valuable to these folks and this bids up the price of existing homes within the Coastal Boundary Zone. So, the regulation both limits new housing supply and raises local housing demand because the community becomes more exclusive. In addition, I do believe that this regulation also maintains the local beauty of the coast and this is also reflected in the high home prices.
A free older version of the paper is available here .