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Study Concludes Growth Restrictions Contribute to Increased Housing Prices

More evidence that restrictions inflate housing prices

Leonard Gilroy
February 17, 2003

Understanding the dynamics of metropolitan housing prices is important for affordable housing advocates, urban planners, policymakers, real estate and development professionals, homeowners, and others with a direct stake in local housing markets. Current research on the factors influencing housing prices is particularly relevant given the growing concern over the lack of affordable housing in many communities nationwide.

A 2002 article in the Journal of Real Estate Research (click here for complete abstract) examined this issue, analyzing factors that influenced housing price changes in a sample of 130 metropolitan statistical areas (MSA) between 1984 and 1998. The results showed that housing price appreciation was strongly influenced by several factors: changes in population, income, construction costs, stock price appreciation, and after-tax interest rates.

The results also showed that local factors influenced housing price appreciation rates in many areas. The analysis included a set of MSA-specific fixed effects variables to control for local factors influencing housing price changes. The researchers found that the magnitudes of the MSA fixed effects were significantly correlated with restrictions on growth and limitations on land availability.

The authors compared the MSA fixed effects to four different growth restriction indexes developed in prior research studies. They found that the MSA fixed effects were positively correlated with each of three separate indexes concerning local regulatory restrictions on growth (e.g., greater regulatory restrictions on growth were associated with a larger appreciation in local housing prices). Also, the MSA fixed effects were negatively correlated to an index measuring land availability (e.g., the greater the available land, the lower the appreciation in local housing prices).

According to the authors, the results suggest that local growth restrictions impede housing growth and lead to a larger appreciation in housing prices. This research also supports decades of scholarly research showing that growth controls can reduce housing affordability if they increase housing costs and limit the supply of land available for new housing units.

Leonard Gilroy is a senior fellow in urban and land use policy at the Reason Foundation


Leonard Gilroy is Director of Government Reform


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