Abstract
We investigate the impact of land use regulation on housing vacancy rates. Using a 30-year panel dataset on land use regulation for 350 English Local Authorities (LAs) and addressing potential reverse causation and other endogeneity concerns, we find that tighter local planning constraints increase local housing vacancy rates: a one standard deviation increase in restrictiveness causes the local vacancy rate to increase by 0.9 percentage points (23%). The same increase in local restrictiveness also causes a 6.1% rise in commuting distances. The results underline the interdependence of local housing and Labour markets and the unintended adverse impact of more restrictive planning policies.
Highlights
To an economist it might seem self-evident that vacancies in the housing stock are a natural feature of how any market must work
The results are set out in detail in Appendix 2. This is the first attempt to rigorously analyse the impact of land use regulation on the spatial and temporal variation in housing vacancy rates
It would come as no surprise to economists to observe that in well-functioning Labour markets there was unemployment
Summary
To an economist it might seem self-evident that vacancies in the housing stock are a natural feature of how any market must work. The Labour market is very much more comparable to the housing market and virtually all mainstream economists expect to observe at least frictional unemployment when the Labour market is in equilibrium (see Pissarides, 1985; Mortensen and Pissarides, 1994; Pissarides, 1994). It is the same in any normally functioning housing market. In equilibrium there must be vacant houses as people move and ‘house-hunt’, as people die or houses wait to be demolished and sellers wait to find a buyer (Han and Strange, 2015). Even in what was one of the least restrictive English Regions, the East Midlands, in calculating how much land should be allocated for housing to meet their estimate of their region's ‘housing needs’, planners argued that they could allocate less land because they assumed they would reduce the number of vacant homes:
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