Do Higher Land Costs for New Single-Family Housing Inhibit Economic Activity in U.S. Metropolitan Areas?

Abstract

The price of a new home is greater if the land to put it on costs more. In many U.S. metropolitan areas, this generates the widely acknowledged equity concern that low- to moderate-income households spend disproportionately on housing. But high residential land prices translating into high single-family home prices may also generate the efficiency concern of discouraging new workers’ entry into such areas or encouraging existing workers’ exit. The result could be a decrease in economic activity. This research offers panel-data regression evidence in support of the existence of this adverse outcome. Perhaps these findings can raise the saliency of the needed state or federal government intervention to curtail the stringency of local residential land-use regulations. NIMBYs see these land-use regulations as in their jurisdiction’s best interest, but as demonstrated here, such restrictions impose additional metro-wide economic concerns.