Restrictive Land Use Regulations and Economic Performance

Abstract

There is emerging evidence that restrictive land use practices can misallocate economic activity across space and generate significant costs for regional and national economies. Work in this area has considered how land use regulations affect the supply of housing within, and the efficient migration of workers among, regions. According to some estimates, by restricting migration to the most productive regions in the United States, land use regulations generate an annual cost to the economy of up to US$1.95 trillion or 13.6 percent of gross domestic product. Yet this focus on labor migration provides an insufficient framework for understanding how land use regulations can shape economic performance. First, current approaches minimize the costs that could arise if firms and industries are misallocated across space. Second, current work overlooks the costs that might arise if land use restrictions misallocate economic activity within regions. Land use regulations can generate significant costs when their administration is designed to maximize the welfare of individual communities rather than the economies of regions and nations. This article will evaluate current research into, and provide a more complete assessment of, the welfare costs associated with restrictive land use practices.

Will Increasing Housing Supply Reduce Urban Inequality?

“…Given that skilled and unskilled workers are not perfectly substitutable, the additional residential externalities generate an excessive concentration of skilled workers in city 1 beyond what is optimal for the production process. This outcome is in line with research by Osman (2020) that changes to land-use regulations not only impact the location decision for workers but also the level output of firms, with impacts on the aggregate economy.…”

“…And for 10% of cities, the price is at least double the cost, which they contend is partially attributable to housing-supply regulations. Osman (2020) has extended the argument over the distortions created by restrictive land-use policies to consider not only labor misallocation, but the misallocation of firms and the impact to metropolitan output from lost agglomeration economies.…”

Mysteries of the trade? Skill-specific local agglomeration economies

“…Rosenthal & Strange, 2020). At this point, the evidence is mounting that agglomeration effects operate at small spatial scales, meaning that land-use planning policies within cities have potentially large influences on economic performance as they set the conditions for the sub-city organization of land and office space (Osman, 2020;Pan et al, 2021). By influencing the location pattern of firms within cities, such policies also influence the potential for various type of agglomeration externalities.…”

Mysteries of the Trade? Skill-Specific Local Agglomeration Economies

“…Rosenthal and Strange 2019). Because of significant agglomeration effects that operate at small spatial scales, land-use planning policies within cities have potentially large influence economic performance as they set the conditions for the sub-city organization of land and office space (Osman 2019, Pan et al 2020. They therefore influence the location pattern of firms within cities and thus the potential for various type of agglomeration externalities.…”