Commentary

Study Concludes Growth Restrictions Contribute to Increased Housing Prices

More evidence that restrictions inflate housing prices

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 Senior Managing Director of the Pension Integrity Project at Reason Foundation, a nonprofit think tank advancing free minds and free markets. The Pension Integrity Project assists policymakers and other stakeholders in designing, analyzing and implementing public sector pension reforms.

The project aims to promote solvent, sustainable retirement systems that provide retirement security for government workers while reducing taxpayer and pension system exposure to financial risk and reducing long-term costs for employers/taxpayers and employees. The project team provides education, reform policy options, and actuarial analysis for policymakers and stakeholders to help them design reform proposals that are practical and viable.

In 2016 and 2017, Reason's Pension Integrity Project helped design, negotiate and draft pension reforms for the state of Arizona's Public Safety Personnel Retirement System and Corrections Officer Retirement Plan, which both passed with overwhelming bipartisan support in the state legislature and were signed into law by Gov. Doug Ducey.

Gilroy is also the Director of Government Reform at Reason Foundation, researching privatization, public-private partnerships, infrastructure and urban policy issues.

Gilroy has a diversified background in policy research and implementation, with particular emphases on competition, government efficiency, transparency, accountability, and government performance. Gilroy has worked closely with legislators and elected officials in Texas, Arizona, Louisiana, New Jersey, Utah, Virginia, California and several other states and local governments in efforts to design and implement market-based policy approaches, improve government performance, enhance accountability in government programs, and reduce government spending.

In 2010 and 2011, Gilroy served as a gubernatorial appointee to the Arizona Commission on Privatization and Efficiency, and in 2010 he served as an advisor to the New Jersey Privatization Task Force, created by Gov. Chris Christie.

Gilroy is the editor of the widely-read Annual Privatization Report, which examines trends and chronicles the experiences of local, state, and federal governments in bringing competition to public services. Gilroy also edits Reason's Innovators in Action interview series, which profiles public sector innovators in their own words, including former U.S. Transportation Secretary Mary Peters, former Florida Gov. Jeb Bush, former Indiana Gov. Mitch Daniels, former New York City Mayor Rudy Guiliani and more.

Gilroy's articles have been featured in such leading publications as The Wall Street Journal, Los Angeles Times, New York Post, The Weekly Standard, Washington Times, Houston Chronicle, Atlanta Journal-Constitution, Arizona Republic, San Francisco Examiner, San Diego Union-Tribune, Philadelphia Inquirer, Sacramento Bee and The Salt Lake Tribune. He has also appeared on CNN, Fox News Channel, Fox Business, CNBC, National Public Radio and other media outlets.

Prior to joining Reason, Gilroy was a senior planner at a Louisiana-based urban planning consulting firm. He also worked as a research assistant at the Virginia Center for Coal and Energy Research at Virginia Tech. Gilroy earned a B.A. and M.A. in Urban and Regional Planning from Virginia Tech.