Built-out cities? How California Cities Restrict Housing Production through Prohibition and Process

Abstract

Given high rents and prices in California, housing production is at a relative historic low. Scholarship has connected restrictive land use regulations to high prices, with limitations on new construction being the assumed mechanism. Less research has focused on which regulations are most binding and where. In this paper, we seek to disentangle the impacts of two dimensions of land use regulation — prohibitions and process — on housing production. We do so by using two new data sources: the Terner California Residential Land Use Survey Data Set, and zoning capacity estimates from the Housing Element of cities’ general plans, in a model of recently-permitted housing (from 2013-2017). We find that an index of regulatory prohibitions against higher density development is strongly associated with less permitting, especially permitting of multifamily housing. An index of process is uncorrelated with permitting, though the base data for this index is not complete. There is also greater endogeneity in measures of process: places with more development are more likely to report delays and other process complexities as constraints on that development. We also test the hypothesis that land use restrictions have a greater impact on production in more expensive places. Our findings show that the interaction between available zoned capacity and housing costs is significant and consequential. Combined with the fact that most expensive places have relatively little remaining zoned capacity for new housing, our findings offer a more comprehensive explanation for the low levels of new housing production in the state.