Abstract
The paper estimates a simultaneous equations model of housing price inflation 1975-1978 for a cross-section of 51 metropolitan areas. A two-stage least squares procedure is used to estimate the demand-side and supply-side determinants of price changes. One of the major sources of inflation is shown to be a variable reporting suburban growth restrictions—the fraction of potentially developed land just beyond the margin of urban settlement that is sequestered from growth. Nearly two-thirds of the SMSAs in our sample had growth restrictions, with an average of 12% of available suburban land set off-limits to growth. Some cities barred growth from as much as 30 to 40% of the nearby surrounding land. Such controls were found to have contributed significantly to inflation. The growth-controlled cities experienced an inflation rate that was about 17% higher than those that did not restrict, ceteris paribus- 12.5% instead of 10.8% annually, 1975-1978.
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