Land-use regulation in “superstar” U.S. cities—same old sad story

The key to understanding housing affordability woes in our most expensive cities is understanding the extent that local regulatory environments hamper the construction of new homes. To do this, however, one must first measure local regulatory environments.

There is, perhaps, no better (or more comprehensive) example of such research than the Wharton School of the University of Pennsylvania’s Wharton Residential Land Use Regulation Index (WRLURI or Wharton Index). The index, released in 2006, was produced by surveying thousands of city governments across the United States, asking questions about everything from zoning regulations to development permit approval processes related to homebuilding.

The Wharton Index’s influence was profound, providing an empirical basis for many subsequent analyses in the growing body of literature linking onerous land-use regulation to rising home prices in America’s most expensive metropolitan areas. It also helped inspire the Fraser Institute’s own survey-based measure of land-use regulation in Canadian cities, whose findings were published in the New Homes and Red Tape series of reports.

More than a decade later, Wharton researchers (notably Joseph Gyourko, the lead author of the 2006 index) have produced a second iteration. Here are a few interesting findings:

Coastal “superstar” cities continue to deter homebuilding: It’s widely known that it’s more difficult to build housing in large productive coastal metropolitan areas such as New York and San Francisco. In this regard, the latest Wharton Index reinforces what many affordability researchers now take for granted. Indeed, of the 44 metropolitan areas with the most robust survey response rates, eight of the top 10 most stringently-regulated markets were situated along the northeast coast (the “Acela Corridor” between Boston and Washington, D.C.) or the west coast (from Seattle down to Los Angeles).

Midwest and southern cities more welcoming to homebuilding: Of the 44 metros areas discussed above, seven of the bottom 10 (i.e. least regulated) are in the Midwest, including so-called “Rustbelt” cities such as Detroit and Cleveland. This is perhaps unsurprising, as declining or negative population growth means that development permit approval processes and departments—efficient or not—are far less encumbered by new applications in these regions. More interesting are the booming southern metropolitan areas of Charlotte, North Carolina, and Atlanta, Georgia, as well as Chicago, which all feature steadily (if not rapidly) growing populations and dynamic economies. Despite these pressures, they are able to keep up (relatively speaking) with the torrent of building permit applications required to house a growing prosperous workforce.

There’s little indication of regulatory improvement over time: With two time periods of survey data to work with now, the Wharton researchers were able to discern some broad takeaways by comparing communities that responded to both surveys. Most notably, there’s little indication that regulatory processes have improved in any meaningful way sample-wide. As the authors put it, when it comes to residential land-use regulation across U.S. metropolitan areas, “what existed near the start of the century is still there in basic form.” In fact, the typical number of approval bodies with veto power over rezoning (an important step in many—if not most—residential development projects) increased in many cities, while density controls (such as minimum lot-size regulations) are also on the rise. In short, there’s no indication that local restrictions on homebuilding are becoming more streamlined in most of the surveyed communities.

Beyond these broad findings, the index is composed of sub-indices—such as the length of approval delays or the requisite amounts in developer fees and exactions—which are each well worth exploring in their own right.

What’s clear is that, two decades into the new millennium, many of North America’s largest most-productive metropolitan areas still face the same affordability challenges they faced at its dawn. Thanks to ongoing work by Wharton economists, we are increasingly confident in identifying the causes and consequences of housing shortages on our well-being, in turn equipping citizens, researchers and policymakers—including here in Canada, especially in markets such as Vancouver and Toronto—to meaningfully tackle this issue sooner rather than later.