2024 – Institute for International Economic Policy (IIEP)

Does Land Use Regulation Lower the Average Price of Housing in Cities?

June 21, 20242024, Anthony Yezer, Authors, Working Papers

June 2024

Anthony Yezer (George Washington University)

IIEP working paper 2024-03

Abstract: A substantial empirical literature finds a positive partial relation between indexes of land use regulations and differences in the asset price of housing among cities. A complimentary theoretical literature concludes that this result arises because planning restricts laissez faire housing supply. The theoretical models use highly stylized characterizations of the effects of land use regulation. This paper provides, for the first time, a formal analysis of the theoretical effects of four stylized specifications of land use restrictions. The sign of the relation between regulation and the average price of housing in cities varies among the four alternatives. Furthermore, analysis of a realistic representation of planning demonstrates that regulation is likely to lower average housing price. Therefore, empirical evidence that housing prices vary directly with regulation could indicate positive amenity effects or benefits of planning and that higher housing prices justify added planning restrictions.

JEL Codes: R14, R31

Key Words: Housing price, land use regulation, standard urban model

Planning Regulations: Two Tests to Determine if We Have Confused the Cure With the Disease

June 20, 2024July 14, 20242024, Working Papers

June 2024

Nathaniel Harris (George Washington University)
Chuanhao Lin (George Washington University)

IIEP working paper 2024-02

Abstract: Previous empirical research has demonstrated that indexes of urban planning restrictions are associated with higher housing prices. Some argue that this relation is caused by a decrease in the supply of housing compared to a laissez-faire city. Alternatively, hedonic estimates finding positive effects of sunlight, lower density, and clean air suggest that price increases could be caused by an increase in the attractiveness of a planned environment. This paper demonstrates theoretically that, in the presence of building density externalities, both arguments could be correct, but that the welfare effects of land use planning cannot be determined by the relation between housing prices and regulation. Two alternative tests are conducted here. First, amenity effects are examined using a Rosen-Roback test. Second, recently available measures of aggregate land value are used in a new test. The Rosen-Roback test results indicate that the house price effects of planning result in a compensating increase in urban amenity. The aggregate land value test, performed for the first time in this paper, finds that the relation between historical patterns of planning regulation and current aggregate land value is positive, consistent with the hypothesis that planning can be a welfare-enhancing remedy for problems of overbuilding under laissez-faire land development.

Institutions, International Financial Integration, and Output Growth

June 20, 20242024, Authors, Working Papers

March 2024

Sunil Sharma (George Washington University)

IIEP working paper 2024-01

Abstract: The paper investigates the long-run output effects of international financial integration, and in particular their dependence on a country’s institutions as proxied by the quality of governance and the level of domestic financial market development. The econometric framework takes account of heterogeneous short- and long-run dynamics, state-dependent thresholds for governance quality and financial development, cross-sectional dependence, output levels and growth rates, and the potential endogeneity of international financial integration. New indices capturing multiple dimensions of governance quality and domestic financial markets are used. Using a sample of 49 relatively large advanced and emerging market economies over the period 1971-2015, the empirical results suggest that a country’s output benefits from international financial integration if it has sufficiently good governance and a reasonably developed domestic financial system; and above the thresholds such benefits generally increase with measures of good governance and the development of the domestic financial system. Output gains from international financial integration are estimated to be modest, especially for less developed countries.