In December, the National Bureau of Economic Research (NBER) released a working paper announcing the release of an updated version of the Wharton Land Use Regulatory Index. The paper’s lead author, Joseph Gyourko, is a professor at the Wharton School who is well known for his research in this area and worked with the previous version of the index.
The index is based on a survey of over 2,400 primarily suburban jurisdictions across the U.S., conducted in calendar year 2018. Answers to the survey are used to construct twelve component indexes (capturing political pressure, number of approvals required, involvement of the state legislature and the court system and the local population in the process, explicit caps on production, density restrictions, presence of impact fees, and the time it takes to obtain approval). The twelve components are combined into an overall index, scaled so that it has an average value of zero and a higher index number indicates more restrictive local land use regulation.
Averaging the index across each of the 44 metropolitan areas that had data on at least ten communities in 2018 clearly shows that the most restrictive regulatory regimes tend to be found on the coasts. The metros with the most restrictive regulations, according to the 2018 Wharton Index, are San Francisco-Oakland-Hayward (with an average index of 1.18) and New York-Newark-Jersey City (with 1.04).
The working paper also compares the 2018 results with those from the previous survey (conducted from 2004 to 2006) to investigate possible changes in the regulatory environment over that span. The comparison shows that there has been an increase in the number of local entities that need to approve a development, although only in cases where the development requires rezoning.
However, the major regulatory increase captured by that the Wharton surveys involves density restrictions. In particular, the surveys showed that minimum lot sizes, already widespread in 2006, were even more common—as well as more restrictive—in 2018. In the 2018 survey, 94 percent of the communities reported minimum lot sizes, and in a quarter of these the minimum lot size was at least one acre.
Impact fees were the only type of regulation that showed a significant decline between 2006 and 2018. Just over half of communities reported imposing some type of impact fees in 2018 compared to slightly over three-quarters of those in the earlier survey. It is important to remember that the earlier survey was conducted from late 2004 through early 2006—before the downturn, when housing production was at its peak, and when there was substantial concern about the number of property-flipping investors in many parts of the country.
A broad conclusion reached by the NBER paper is that the basic framework of the local regulatory environment has not changed much since 2018: communities have neither abandoned old types of regulation nor adopted radically new types. The NBER paper is describing land use regulations specifically, however. Complaints fielded by NAHB suggest that architectural restrictions on single-family homes (e.g., outlawing less expensive types of siding) have become an emerging local regulatory issue, but this is probably outside the scope of the Wharton survey.
For readers interested in more detail, the working paper is titled “The Local Residential Land Use Regulatory Environment Across U.S. Housing Markets: Evidence from a New Wharton Index.” It can be purchased at a relatively modest cost (for an academic article) on the NBER web site.
Readers may also be interested in the housing supply regulation index created by Peter Ganong and Daniel Shoag, and the estimates of regulation as a fraction of single-family house price and multifamily development costs published by NAHB. These different measures are estimated differently, serve somewhat different purposes, and are probably best viewed as complements to one another.