The Association between
Prescriptive Land Use Regulation and Higher House Prices:
Literature Review on Smart Growth, Growth Management,
Livability, Urban Containment and Compact City Policy
It is a fundamental principle, that all things being equal, that limiting the supply of a good orservice is likely to lead to higher prices. This is a particularly important relationship in housing,
because of the adoption of much stronger land use regulations ("prescriptive land use
regulation") around the world. Generally, research associates higher house prices with theimplementation and enforcement of stronger land use regulations.
Prescriptive land use regulations include measures such as urban growth boundaries, large areas
declared off-limits to development, building moratoria, population limits, unit construction
limits, expensive unprecedented impact fees, excessively large minimum lot sizes and otherrestrictive strategies. Prescriptive land use regulation allows development only prescribed understrict conditions that are consistent with stringent land use plans and policies.
These policies are referred to as “smart growth,” (also called "livability," "compact
development," "urban containment," and in Australia, “urban consolidation"). Smart growth
generally places restrictions on the supply of new housing and are associated with higher house
prices and a reduced volume of house construction.
The alternative to prescriptive land use regulation is responsive land use regulation, whichallows development to respond to the market as reflected in the preferences of people andbusinesses (and subject to reasonable environmental and health regulation).
Empirical ResearchConsiderable econometric and other empirical research has examined the association between
prescriptive land use policies and higher house prices. The research overwhelmingly indicatesthat stronger land use regulation is associated with higher house prices. Moreover, evencomparatively modest house price differentials can have a significant effect on a community andits inhabitants. Brookings Institution economist Anthony Downs (1994, p. 36) notes that even a
modest 10 percent increase in house prices makes it impossible for four percent of household topurchase a home, and concludes such an effect to be "socially significant."
One literature review lists more than 25 studies over a period of 30 years, all of which indicate apotential for association between stringent land-use regulation and higher house prices (Quigley
and Rosenthal 2005).1 The extent to which house price increases are associated with land use
regulation varies. Research has associated as much as 90 percent of average overall house price1

This count is limited to research involving prescriptive land use regulation.

Prescriptive Land Use Regulation (Smart Growth) & Higher House Prices: The Association

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increases with prescriptive land use regulation (Eicher 2008b), with house price differentials of
up to 54 percent and new house price differentials of up to 61 percent (Downs 1992).
This document provides a representative review of the research on prescriptive land use
regulation and its association with higher house prices. The research is divided into the following
sections:(1) Price Research by Central and Reserve Banks and International Organizations(2) Academic Price Research(3) Research on Price Volatility and Speculation(4) Research Cited to Refute the Association(5) The Principle of Competitive Land Supply(6) Research on the Housing Bubble and Prescriptive Land Use Regulation(7) Research on Prescriptive Regulation and Metropolitan Economies(1) Price Research by Central and Reserve Banks and International Organizations
The association between prescriptive land use regulation and higher house price has been
examined by a number of economists associated with national central and reserve banks andinternational organizations.
Barker: United Kingdom government reports by Kate Barker (2004 and 2006), then a memberof the Monetary Policy Committee of the Bank of England, blamed that nation’s loss of housing
affordability on its prescriptive land use policies under the Town and Country Planning Act of1947 (The Barker Reports).
Grimes: A New Zealand government report by Arthur Grimes (2007), Chairman of the Board of
the Reserve Bank of New Zealand blamed the loss of housing affordability in the nation’s largest
urban area, Auckland, on prescriptive land use policies. In another report, Grimes (2025
Taskforce 2009) found that per-acre prices just inside Auckland's urban growth boundary were
10 times that of comparable land on the other side of the urban growth boundary.
Stevens: Reserve Bank of Australia Governor Glenn Stevens told a parliamentary committee that
“An increase in state government zoning regulations is a significant factor driving up the cost of
housing.” He also noted the increase in local and state government levies on new developments
as a driver of higher housing prices.
In a 2011 parliamentary committee appearance, Governor Stevens (Stevens 2011) said:
How is it that a country of our size—we are not short of land—cannot add to the dwellingstock for the marginal new entrant more cheaply than we seem to be able to do? I cannot
get past that basic question. But—without denying that interest rates have an effect on the
Prescriptive Land Use Regulation (Smart Growth) & Higher House Prices: The Association

Page 2housing market, obviously—it seems to me that this goes to a whole group of things on
supply, zoning, transportation, infrastructure et cetera.
He added a note of caution:
There is a very big inequality between generations that is building up. I think that is asocial problem as much as an economic one.
MacFarlane: In 2006, Governor of the Reserve Bank of Australia (that nation's central bank)testified about the impacts of prescriptive land use policies on house prices:
Why has the price of an entry-level new home gone up as much as it has? Why is it not
like it was in 1951 when my parents moved to East Bentleigh, which was the fringe ofMelbourne at that stage, and where they were able to buy a block of land very cheaply
and put a house on it very cheaply? Why is that not the case now? I think it is pretty
apparent now that reluctance to release new land plus the new approach whereby thepurchaser has to pay for all the services up front - the sewerage, the roads, the footpaths
and all that sort of stuff, has enormously increased the price of the new, entry-level home.
The reference to reluctance to release new land refers to the practice of Australian land use
authorities to allow insufficient amounts of land to be developed to maintain the competitive land
supply, while "paying for services up front" refers to the practice of requiring excessive
development impact fees as a condition of building new houses.
Brash: Former Reserve Bank of New Zealand Governor Donald Brash (2008) wrote that theaffordability of housing is overwhelmingly a function of just one thing, the extent to whichgovernments place artificial restrictions on the supply of residential land.
Federal Reserve Bank of Dallas: An analysis by the Federal Reserve Bank of Dallas (2008)
notes the association between metropolitan area house price increases in the 2000-2006 housing
bubble and the presence of prescriptive land use regulation.
Demand for housing, driven by low interest rates and a growing economy, combined with
supply restrictions—such as zoning laws, high permitting costs and “not in mybackyard” regulations—to contribute to rapid price appreciation. … low levels of
construction in the face of strong demand contributed to significant price appreciation…
The analysis notes that in the responsive markets of Atlanta, Dallas-Fort Worth and Houston,flexibility with respect to housing supply spared those metropolitan areas the price increases that
occurred in prescriptive markets.
… Atlanta, Dallas-Fort Worth and Houston “weathered the increased demand largely
with new construction rather than price appreciation because of the ease of building new
homes.
OECD (2005): A report by the Organization for Economic Cooperation and Development(OECD) provides further evidence of the association between prescriptive land use regulations
ad higher house prices. The OECD noted thatPrescriptive Land Use Regulation (Smart Growth) & Higher House Prices: The Association

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House prices can also be affected by other features that are particular to this market. Of
note are restrictions on the availability of land for residential housing development thatcan constrain the responsiveness of supply. These would include tough zoning rules,
cumbersome building regulations, slow administrative procedures, all of which would
restrict the amount of developable land.
The report highlighted the experience of the United Kingdom, consistent with the conclusions of
the Barker Report (above).
In the United Kingdom, complex and inefficient local zoning regulations and a slow
authorisation process are among the reasons for the rigidity of housing supply,
underlying both the trend rise of house prices and their high variability.
In the same report (OECD 2005, Box III.2, Page 211), OECD notes the substantial differences inhousing affordability between US markets. The OECD associates more restrictive land use
regulation with less affordable housing in California, New Jersey, Massachusetts, New
Hampshire and the Washington DC area. The OECD also shows Texas (which has responsive
land use regulation) as having superior housing affordability.
OECD (2011): A recent review of international housing markets by OECD noted that: "Poorly
managed housing markets played a key role in triggering the recent global financial crisis andmay be slowing the recovery" OECD expressed concern about planning regulations that drive up
prices lead to greater price volatility, and recommended that nations: "Increase responsiveness of
new housing supply to market demand" and noted further than nations "should reassess licensing
procedures that limit new housing starts and reconsider land-use regulations that unduly prevent
development. More responsive supply can limit price volatility, excessive price increases andencourage labour mobility." This advice was particularly directed at the United Kingdom andAustralia, which are dominated by stringent land use regulation.
World Bank: World Bank Economist Steven K. Mayo (1997) indicated that "house prices inenabling cities with stricter regulatory policies have risen in relative terms some 30 to 60 percent
over a 15-year period." He further noted " Relative shifts in housing costs are in some cases
equivalent to doubling potential residents’ combined federal and state income tax, creating
powerful disincentives for moving and for the functioning of labor markets These and similarfindings suggest that systematic policy mistakes have been made, that their costs have been high,and that it is time for a general change in thinking about the aims and instruments of land andhousing policy."(2) Academic House Price and Housing Supply Research
There has also been considerable academic research on the association between prescriptive land
use regulation and higher house prices.
Hall, Thomas, Gracey & Drewett: Perhaps the earliest evaluation of a prescriptive land use
regulation was in the two volume The Containment of Urban England, which was a five year
project by a team of academics led by urbanologist Sir Peter Hall (1973) of University College,
London. The subject of this early 1970s work was the housing market as it had evolved since the
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enactment of the Town and Country Planning Act in 1947. Hall and his colleagues find that"perhaps the biggest single factor of the 1947 planning system is that it failed to check the priceand land prices which is probably the largest and most potent element of Britain's postwar
inflation." The results are characterized as being inconsistent "with the objective of providing
cheap owner occupied housing." Moreover, Hall, et al note that the planning system has imposed
the greatest burdens on lower income households
Fischel: Stronger land use regulation was implemented in California in the 1970s through court
decisions and administrative actions. William Fischel of Dartmouth University (Fischel 1995,
218-225) notes that until 1970 California house prices were similar to those in the rest of thenation. Fischel indicates that in 1970, California median house prices relative to median family
incomes were 29 percent higher than in the rest of the nation. By the end of the decade,
California house prices had escalated to more than 75 percent higher in relation to incomes ofthis in the rest of the nation and by 1990 the difference had expanded to approximately 120
percent.
Fischel looks at potential causes for the divergence of California house prices from those in therest of the nation. He finds that there was little difference in the trend of construction costs
between California and the nation and notes that the housing price "explosion" is not "explainedat all by construction costs.
Fischel then notes that one of the most important elements of demand that might be expected toincrease house prices, incomes that were rising faster than the rest of the nation did not occur.
Fischel agrees that the quality of life in California is perceived to be better than in much of therest of the nation, yet finds that no evidence that the California advantage had expanded during
the 1970s, when the house price difference expanded. He suggests that it would have been more
likely to expect the large increases to have occurred before 1970, when, according to Fischel, theamenity differential between California and the rest of the nation was greater. Other research thathas examined amenity differences between California and the rest of the nation has generally notincluded land use regulation differences in econometric specifications.2
Fischel also notes that the 1970s were a relatively slow growth decade in California, whichremoves another demand side impact it could have been expected to influence house prices
upward. He also notes that California's property tax limitation (Proposition 13), which wasenacted in 1978, came after the most significant house price increases.
Finally, Fischel finds that land for development is plentiful, eliminating the scarcity of land as afactor that had should have driven house prices upward.
Eicher: Theo Eicher of the University of Washington (2008b) developed an econometricanalysis of house price increases in 250 municipalities around the nation between 1989 and2006. He divides the factors into two broad categories. Demand factors include the increase in
2

See, for example, Costa and Kahn (2003), who find substantial amenity advantages reflected in the increase inhouse prices in San Francisco compared to Chicago from 1970 to 1990. Their econometric specification, however,
did not include the impact of the land use regulatory increase over the period, which according to Fischel and others
was associated with substantial price escalation in California relative to the rest of the nation.

Prescriptive Land Use Regulation (Smart Growth) & Higher House Prices: The Association

Page 5household income, the increase in population and the increase in population density. Supply
factors include various regulatory measures. House prices are normalized for inflation. In a
examination of five municipalities in the state of Washington, Eicher associates approximately
90 percent of the increase in house prices to land-use regulatory factors both in a sample of five
Washington municipalities. In an earlier working paper, Eicher's data also indicates thatapproximately 87 percent of house price increases in 250 US municipalities was associated withmore stringent land use regulation (Eicher 2008a).
Gyourko and Summers: Gyourko and Anita Summers (2006) of the University of Pennsylvania
analyzed land use regulation in the Philadelphia metropolitan area and found that larger lot priceincreases are associated with more extensive land use regulation. They further found thatassociation between more stringent land use regulation and higher lot prices was stronger than
the association between land scarcity (population density) and higher lot prices. More restrictive
land use regulation was associated with at least 70 percent higher relative areas with lessstringent regulation. This finding that the demand variable of population density was lessrobustly associated with higher house prices than regulation is parallel to the Eicher findings,
above.
Malpezzi: Stephen Malpezzi (1996) of the University of Wisconsin examined house prices in 56
metropolitan areas using an econometric analysis to identify the impacts of various degrees ofregulation. This analysis indicates a 51 percent house price premium in the highly regulated
metropolitan areas. Moreover, he finds that building permits in such areas tend to beapproximately 40 percent lower than would have been expected.
Brueckner: Jan Brueckner (2007) of the University of California, Irvine suggests that an urban
area with an urban growth boundary (UGB) will tend to have higher housing costs and says that
"Unless there are offsetting benefits, a UGB land-use intervention that makes consumers lesswell off." Brueckner's review of the economic literature...points to a potential pitfall in government land use interventions. Well-meaninginterventions that cause land use outcomes to diverge substantially for free market
outcomes run the risk of generating net social losses. The problem is that the expected
benefits from large interventions may be swamped by unanticipated losses, which may beoverlooked by government officials with an incomplete understanding of the operation ofreal estate markets.
Brueckner also says:.... the higher housing prices caused by the UGB3 lead to a lower standard of living,harming the city's residents. Unless there are offsetting benefits... a UGB is acounterproductive land use intervention that makes consumers less well off.
Brueckner also raises issues of intergenerational equity.
Land use regulations that increase housing prices also have a time dimension: current
owners are the beneficiaries of such regulations, but their children and future migrants to3

Urban growth boundary.

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Page 6the area bear the cost. This represents redistribution over time and generations, which
may affect the location decisions of individuals and companies to limit productivity
growth.
Glaeser and Gyourko: Edward Glaeser of Harvard University and Joseph Gyourko of the
University of Pennsylvania (2002) compare house prices to the cost of construction of houses
and find, through an econometric analysis, that the differential between replacement costs andhouse plus land costs are greater where there is stronger land use regulation. They noted:
America does not uniformly face a housing affordability crisis. In the majority of places,
land costs are low (or at least reasonable) and housing prices are close to (or below) thecosts of new construction. In the places where housing is quite expensive, zoning
restrictions appear to have created these high prices.
Saks: In an econometric analysis, Raven Saks (2005) of the Federal Reserve Board finds that in
an equal demand shock "places with more regulation "experience a 17 percent smaller expansionof the housing stock and almost double the increase in housing prices."
Katz and Rosen: In an econometric analysis, Kenneth Katz of Harvard University and
Lawrence Rosen (1987) of the University of California, Berkeley found that growth control
measures "appear to have had a substantial impact on housing prices." In an examination of San
Francisco Bay Area municipalities, they found that jurisdictions with growth control measures
had house prices between 17 and 38 percent higher than where there were no such measures.
Cheshire: In an analysis and compendium of research on the association between stronger land
use regulation and higher house prices, Paul Cheshire (2009) of the London School of
Economics concluded that prescriptive land use regulation (which he refers to as urban
containment) is "irreconcilable" with housing affordability and ###price stability.
Angel: Princeton University and New York University Professor Shlomo Angel (and co-author
with Steven Mayo of the United Nations and World Bank housing indicators program) said:
Enabling mortgage finance and subsidy policies, for example, can increase the demandfor housing, while heavy-handed regulations and infrastructure shortages can constrain
supply. The overall result can be a shortage of housing, accompanied by high prices andlow affordability for all. If, on the other hand, supply-side policies are enabling, thenhousing supply may be able to expand quickly to meet demand, with the result that higher
demand will result in more housing at affordable prices.
Hilbur and Robert-Nicoud: Christian Hilber of the London School of Economics and Frederic
Robert-Nicoud of the University of Geneva conclude that land use regulations "impose --- via
increasing housing costs --- an enormous gross cost on households" in an econometric analysis
of US metropolitan areas. They also associate stronger land use regulation with a "highly
significant" reduction in the growth rate of housing supply.
Guidry, Shilling and Sirmans: Krisandra Guidry, James Shilling, and C.F. Sirmans (1991)
found that finished residential lot prices in the "most restrictive" markets was more than $50,700,
but only $23.800 in "least-restrictive" markets (cited in Nelson, et al).
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Downs: Anthony Downs (1992) examined the effects of growth management plans in San Diegoand associated higher prices of existing homes of 54 percent and new homes of 61 percent in aperiod of three years. Downs (2000) also reviewed the experience of Portland's urban growthboundary and found an association with higher house prices in some years and not in others. His
review was performed before the substantial house price escalation that occurred after 2000.
Downs also notes that the mere establishment of an urban growth boundary is not associatedwith higher house prices, but that if the urban growth boundary is tightly drawn and strongly
enforced in an environment of strong demand, an association with higher house prices can be
expected.
Green, Malpezzi and Mayo: Richard Green of the University of Wisconsin, Malpezzi and Mayo(2005) performed an econometric analysis of 44 US metropolitan areas and found that heavily
regulated metropolitan areas "always" had constricted housing supplies (low elasticities). In
reviewing research in which economists have attempted to establish indexes of regulatory
restrictiveness,
Green and Malpezzi: In reviewing research in which economists have attempted to establish
indexes of regulatory restrictiveness, Green and Malpezzi (2003) say that regardless of the index
used, increased levels of regulations bring about higher house prices. Their own model indicatesa strong association between more restrictive land-use regulations, higher house prices, higher
rents, and diminished home building. Finally, Green and Malpezzi indicate that more restrictive
regulations "increase costs, often without corresponding benefits."
Glaeser, Sheutz and Ward: Edward Glaeser, Jenny Shuetz and Bryce Ward (2006) also showthat the prescriptive planning recommended strategy of large lot or rural zoning can beassociated with substantially higher house prices, by excessive consumption of land available fordevelopment. The researchers found that Boston’s house prices had been inflated 60 percent bysuch planning induced scarcity.
Krugman: Nobel Laureate economist Paul Krugman (2005 and 2006) of Princeton University
and the The New York Times noted that the house price bubble had been limited to metropolitan
areas with strong land use regulation. In a later article, Krugman cited the relationship between
the more liberal land use regulation of Texas and its lower cost of living:
For this much is true about Texas: It has, for many decades, had much faster population
growth than the rest of America — about twice as fast since 1990. Several factors
underlie this rapid population growth: a high birth rate, immigration from Mexico, andinward migration of Americans from other states, who are attracted to Texas by its warm
weather and low cost of living, low housing costs in particular.
And just to be clear, there’s nothing wrong with a low cost of living. In particular, there’s
a good case to be made that zoning policies in many states unnecessarily restrict the
supply of housing, and that this is one area where Texas does in fact do something right.
(3) Research on Price Volatility and Speculation

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In addition to the association between prescriptive land use regulation and higher house prices,
economic research has indicated an association between greater price volatility and prescriptive
land use regulation as well as an association between more intense speculation and prescriptive
land use regulation.
Federal Reserve Bank of Dallas: The Federal Reserve Bank of Dallas (2008) associates therising prices from prescriptive land use regulation with higher levels of real estate speculation,
which drives prices even higher.
These price increases then fed off themselves. Rising prices—whether for gold, corn orhouses—often foster a bubble mentality, contributing to speculative demand.
Prescriptive land use regulation is also associated with more volatile prices. Prescriptive land use
regulation brings more chaotic “boom and bust” cycles to housing markets.
Glaeser and Gyourko: This is noted by Glaeser and Gyourko (2008), who summarize thefindings of a number of studies:
Recent research also indicates that house prices are more volatile, not just higher, intightly regulated markets.
…price bubbles are more likely to form in tightly regulated places, because the inelastic
supply conditions that are created in part from strict local land-use regulation are an
important factor in supporting ever larger price increases whenever demand isincreasing.
They further show that in the house price booms of the 1980s and 1990s "price increases were muchhigher in markets that were more supply constrained." Thus, prescriptive land use regulations converts

more modest price bubbles into more severe price bubbles.
Finally, they note that housing bubbles generally do not occur in responsive markets.
It is more difficult for house prices to become too disconnected from their fundamental
production costs in lightly regulated markets because significant new supply quickly
dampens prices, thereby busting any illusions market participants might have about thepotential for ever larger price increases.
Malpezzi and Wachter: Malpezzi and Susan Wachter (2005) of the University of Pennsylvania
conclude that speculation is largely limited to where there are significant supply constraints.
They conclude that "the effects of speculation appear to be dominated by the effect of the priceelasticity of supply. In fact, the largest effects of speculation are only observed when supply isinelastic."
Malpezzi: In his analysis of Korean housing markets, Malpezzi (2005) notes that "speculation ismore a symptom than a cause of a poorly performing housing market.
Haughwout, Donghoon, Tracy and van der Klaauw: Andrew Haughwout, Donghoon Lee,
Joseph Tracy and Wilbert van der Klaauw (2011) of the Federal Reserve Bank of New York
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show that speculative activity was much greater in California, Florida, Arizona and Nevada(which they label the "bubble states") than elsewhere during the housing bubble. According to
the researchers, this greater speculative activity in these markets made the market more instablebecause unlike owner-occupiers, investors are far more likely to default on mortgage loans.
(4) Research Cited to Refute the Association
Proponents of prescriptive land use regulation have generally contended that it is not associatedwith higher house prices. Research is cited to support this position is described below.
Nelson, Pendall, Dawson and Knapp: The work of Arthur Nelson, Rolph Pendall, Casey
Dawson and Gerrit Knapp (2008) for the Brookings Institution has been frequently cited by
advocates of smart growth to demonstrate that house prices are not associated with stronger land
use regulation. As economist Theo Eicher notes, "even cursory reading of the executive
summary reveals" that the conclusions of the paper do not deny such an association" (Eicher
2008b). Further, Connerly (2007) shows that 32 of the economic studies cited by Nelson, et. al,indicate an association between stronger regulation and higher house prices.
In fact, Nelson et al find such an association urban growth boundaries and higher house prices in
California.
However, even well-intentioned growth management programs ... can accommodate too
little growth and result in higher housing prices. This is arguably what happened in partsof California where growth boundaries were drawn so tightly without accommodatingother housing needs
Nelson, et al find no association between Portland's strong urban growth boundary and house
price increases. However, there is evidence to the contrary, including the Downs finding of someassociation in some years before 2000 (Downs 2002). Moreover, later data (Section 5) indicatesthat Portland house prices had escalated strongly relative to prices in more responsive markets(obviously, this information was not available to Nelson, et. al at the time).
Two studies cited by Nelson, et al found mixed results that support the Nelson, et al "design"
hypothesis (Landis 1986 and Lowry and Ferguson 1992), by finding that house price escalation
was associated with more rigid prescriptive land use policies. Each study found an association ina metropolitan area with a more rigid urban growth boundary, but not in a comparison
metropolitan area in which an urban containment device was less rigid or less rigidly enforced.
This is consistent with the Nelson, et al conclusion that more restrictive land use regulation canlead to higher prices:“... the housing price effects of growth management policies depend heavily on how
they are designed and implemented. (emphasis in original) If the policies tend to
restrict land supplies, then housing price increases are expected.”
The Nelson, et al point about regulatory flexibility and densification is confirmed by theexperience in Portland, Las Vegas and Phoenix where urban growth barriers had little association
with house prices when there was a significant amount of developable land available. However,Prescriptive Land Use Regulation (Smart Growth) & Higher House Prices: The Association

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as the available land within the barriers declined, the association between the availability of land
and higher housing prices became evident (Cox 2011a).
Association with Higher Prices Conceded: Even so, in The Costs of Sprawl---2000, (Burchell, etal 2002) which is largely sympathetic to prescriptive land use regulation, the authors note thepotential for the first seven of their top ten strategies to increase house prices. The Costs ofSprawl---2000 was published by the Transportation Research Board, a unit of the National
Academies of the United States (Table).
Erroneous Claim: Smart Growth Reduces House Prices: The Costs of Sprawl---2000 (Burchell,
et al 2002) predicted that from 2000 to 2025 house prices in markets with smart growth would
experience house price declines relative to markets without smart growth. Even after the burstingof the housing bubble, median house prices in the prescriptive markets have risen $68,000
relative to prices in responsive markets (Cox 2011c),
Impact on Lower Income Households: The Tomas Rivera Policy Institute (Lopez-Aquerez,
Skaga and Kugler 2002), a Latino research organization expressed concern about the extent towhich California's prescriptive land use regulation was interfering with Latino (generally lower
than average incomes) home ownership opportunities:
While there is little agreement on the magnitude of the effect of growth controls on homeprices, an increase is always the result.
(5) The Principle of Competitive Land Supply
Economist Anthony Downs of the Brookings Institution has indicated the importance of
maintaining the "principle of competitive land supply" (Downs 1994, p. 38). Downs notes:
If a locality limits to certain sites the land that can be developed within a given period, it
confers a preferred market position on those sites. In economists' terminology, any such
limitation shifts the demand curve for developable land upward and to the left, raisingland prices. If the limitation is stringent enough, it may also confirm a monopolistic
powers on the owners of those sites, permitting them to raising land prices substantially.
This is illustrated by the experience of Portland, Las Vegas and Phoenix (Cox 2011a).
Portland: Severe house price escalation occurred in Portland after the regional land use authority(Metro) failed to expand the urban growth boundary sufficiently to handle demand. Phillips andGoodstein (2000) cited research by Metro indicating that residential land at the edge, but insidethe urban growth boundary averaged nearly seven times the value per acre of residential land justbeyond the urban growth boundary (Phillips and Goodstein 2000). Later research Portland
indicated that land on which development is permitted inside the urban growth boundary tended
to be 10 times as valuable per acre as land immediately outside the urban growth boundary, on
which development was not permitted (Mildner 2009). The author's more recent examination of

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all developable parcels in Portland's Washington County indicated that the difference had
increased to 11 times (Cox 2011a).4
In 1980, the urban growth boundary encompassed an area equal to 23 percent of urban footprint.5
By 1990, this had fallen to 12 percent, and then to six percent by 1995. By 2000, the land insidethe urban growth boundary was less than one percent relative to the urban footprint.

Table
More Restrictive Land Use Regulation: Policies
With Potential to Increase Land Costs and House Prices
Potential to Increase Housing Prices(and Source)#

Policy1

URBAN CONTAINMENT

1-A

Regional Urban Growth Boundaries

YES per Costs of Sprawl -- 2000

1-B

Local Urban Growth Boundaries

YES per Costs of Sprawl -- 2000

1-C

Regional Urban Service Districts

YES per Costs of Sprawl -- 2000

1-D

Local Urban Service Districts

YES per Costs of Sprawl -- 2000

1-E

Restrictions on Physically Developable Land

YES per Costs of Sprawl -- 2000

1-F

Infill Quotas

YES per Demographia (Note 1)

2

LARGE-LOT ZONING IN URBAN FRINGE & RURAL AREAS

YES per Costs of Sprawl -- 2000

3

GEOGRAPHICAL GROWTH STEERINGYES per Demographia (Note 2)

3-A

State Aid Contingent on Local Growth Zones

YES per Costs of Sprawl -- 2000

3-B

Excessive Public Facility Requirement Ordinances

YES per Demographia (Note 3)

4

HOUSE BUILDING MORATORIA OR LIMITSYES per Demographia (Note 4)5

HIGH DEVELOPMENT FEES & EXACTIONSYES per Costs of Sprawl -- 2000

6

MANDATORY REGIONAL OR COUNTY PLANNING

LIKELY per Demographia (Note 5)

Source: Policies 1, 2, 3, 5 from Table 15.4 Costs of Sprawl---2000 (Burchell, et al).
Note 1-F: Infill quotas force more development into infill areas, which increases infill land prices, while increasing
the price of urban fringe land by rationing new development.
Note 2: Policy #2 has the potential to increase housing prices because it would require implementation of policies#1-A, 1-B, 1-C, 1-D, I-E or I-F, each of which have the potential to increase housing prices.
Note 3: Policy 3-B (sometimes called "adequate public facility ordinances") can be used to force new housing into
growth areas or areas that are already developed and can result in the imposition of "virtual" urban growthboundaries by severely limiting the land that can be developed, raising its cost and that of housing.
Note 4: Policy #4 increases house prices by rationing new houses.
Note 5: Policy #6 is likely to increase house prices because of the propensity of planning professionals to favor
more restrictive land use regulations.

4

The selection criteria included only undeveloped properties of 5 or more acres and unfinished (without
on-site infrastructure). Research conducted based upon Internet information in February 2010. Property
along 25 miles of the urban growth boundary from Cedar Hills to Hillsboro to southwest Beaverton was
included in the analysis.
5

The urban footprint plus the land inside the urban growth boundary equaled 123 percent of the urban footprint.
Urban area in Oregon (part of the urban area is in Washington). Calculated from US Census Bureau and Metro data.
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As the available land inside the urban growth boundary diminished, Portland experienced thelargest housing affordability loss among major metropolitan areas during the 1990s (Cox 2002).
By the end of the 1990s, the gap between the urban growth boundary and the urban area
(reflective of developable land on the fringe) had dropped by more than 95 percent from 1980
(Cox 2011a), as Metro (the regional land use agency) had failed to provide expansions sufficient
to meet the demand. For the first time since World War II, Portland house prices exceeded a 3.0
Median Multiple (median house price divided by median household income)6 and by the peak of
the bubble (2007) Portland house prices had escalated a further 90 percent relative to householdincomes, to 5.4. Before the middle 1990s, Portland's housing affordability had been similar tothat of responsive housing markets. From 1980 to 1995, Portland's Median Multiple averaged
2.5, just below the average of the responsive markets, at 2.6. The highest Median Multiple inPortland during that period was in 1994, at 3.1. The highest responsive market Median Multiple
over the same period was 2.8, which Portland had equaled or exceeded in only one year until
1994.
Moreover, it is possible that Portland's house price increases were moderated by the more liberalland use regulations in the portion of the metropolitan area in the state of Washington (Thisincludes the municipality of Vancouver as well as Clark and Skamania counties).
Portland's house price escalation continued into the 2000s, as house prices escalated during the
bubble to a 5.4 Median Multiple in 2007, 70 percent above the responsive market average of 3.2.
As of 2010, Portland house prices remained 50 percent above the responsive market MedianMultiple.7
Las Vegas and Phoenix: The effects of a loss of a competitive land supply is illustrated by Las
Vegas and Phoenix. Similarly, there are virtual urban growth boundaries in Las Vegas andPhoenix. These development constraints are defined by surrounding government owned land,some of which has been sold through auctions intended to maximize revenues. While thisapproach makes commercial sense, it maximized land prices and ultimately reduced housing
affordability.
During the 1990s and 2000s, Las Vegas was the fastest growing metropolitan area with apopulation above 1,000,000 in the United States. Despite the strong demand, house prices had
remained near historic norms through 2002.
The competitive supply of land was being depleted by the continuing growth and much of the
new land had to be purchased from the federal government at auction.
Substantial escalation (approximately 85%) occurred in house prices from 2002 to 2006.
Coincidentally, over the same period, federal government land auctions prices for urban fringe
land rose from $50,000 per acre in 2001-2, to $229,000 in 2003-4 and $284,000 at the peak of
the housing bubble in 2005-2006 (Cox 2010a).
6This broadly utilized indicator of housing affordability has generally been 3.0 or below in responsive markets in
the United States (which included all markets before 1970). Additional details on the Median Multiple will be foundin the 7th Annual Demographia International Housing Affordability Survey, pp 1 & 7.
http://www.demographia.com/dhi.pdf
7
Calculated from US Census Bureau and National Association of Realtors data.
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In the Phoenix urban area, state auction prices rose nearly as much as in Las Vegas, as thecompetitive land supply had been depleted. This coincided with substantial house price increases(Cox 2010b).
Across the Urban Growth Boundary Land Value Differences: As noted above with respect toPortland, the urban growth boundaries and similar regulatory restrictions have been associatedwith significant differences in the value of virtually adjacent undeveloped lands depending on
the potential for planning permission. Without an urban growth boundary, it would be expectedthat land on both sides of an urban growth boundary would have similar values.
New Zealand: As noted above, Grimes found that land prices across Auckland, New Zealand'surban growth boundary varied significantly. Land prices per acre just inside the urban growthboundary averaged 10 times the prices per acre of comparable land just outside the urban growthboundary (Grimes 2009).
United Kingdom: A variety of value differentials between land on which development ispermitted or not permitted has been identified in the United Kingdom. Cheshire has found cases
in which agricultural land could increase in value 700 times when rezoned for residential
development in Southeast England (Cheshire 2010). Timothy Leunig of the London School of
Economics founded differentials of 500 times in the London area (Leunig 2007). The Barker
report contains data indicating that differentials average 250 times outside the London area
(Barker 2006).
When Competitive Land Supply is Lost: Failing the Nelson et al Test: The land pricedifferentials and house price trends indicated in Auckland, England, Portland, Las Vegas andPhoenix provide strong indication that a competitive land supply probably has not been
maintained. In each case, the test suggested by Nelson et al, seems to have been failed. The
competitive land supply was not maintained, as the policies tended to "restrict land supplies."
The housing price increases that Nelson et al. "expected" have in fact happened.
(6) Research on the Housing Bubble and Prescriptive Land Use Regulation
The research also indicates that prescriptive land use regulation is associated with intensified
housing bubbles.
Glaeser and Gyourko: As noted above, Glaeser and Gyourko showed that in the house pricebooms of the 1980s and 1990s "price increases were much higher in markets that were more
supply constrained" (Glaeser and Gyourko 2008).
Sowell: Thomas Sowell of the Hoover Institution associated smart growth regulation with theextraordinary run-up in prices in some markets and noted that where smart growth had been
resisted, "home prices remained reasonable despite rising incomes and population (Sowell2007)."He commented on further in The Housing Boom and Bust:
It is very doubtful if many in academic communities who have campaigned zealously forland use restrictions under any of the heady and lofty labels used for these restrictions,
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Page 14have any idea that they are in any way responsible for the dire financial conditions in the
country today or for the hundreds of thousands of workers who have lost their jobs.
Later research by this author indicates that when more the profligate mortgage loan policies were
implemented during the US housing bubble, metropolitan areas that had adopted prescriptive
land use policies lacked the resilient land markets that would have allowed the greater demand tobe accommodated without inordinate increases in house prices. These resulting price increases
were unprecedented and led to the intensive mortgage losses than precipitated the international
financial crisis (Cox 2008 and 2011).
Finally, a recent review of international housing markets cited above by OECD (2011) noted
that: "Poorly managed housing markets played a key role in triggering the recent global financial
crisis and may be slowing the recovery"(7) Research on Prescriptive Regulation and Metropolitan Economies
Econometric research also suggests an association between slower economic growth andprescriptive land use regulation.
Saks: Raven Saks (Saks 2005) examines the relationship between house prices, housing supply
and employment growth in metropolitan areas in the United States between 1980 and 2000. The
resulting econometric analysis finds that where housing supply is more constrained byregulations, employment growth is likely to be less than expected. The annual differential isestimated at a reduction of 0.2 percent per one percent of growth (a 20 percent reduction in theannual growth rate)
Nandwa and Ogura: Boaz Nandwa of the University of Dubai and Laudo Ogura (2010) of
Grand Valley State University perform an econometric analysis of US metropolitan areas to
identify any Association between economic productivity and strict land-use controls. They findthat metropolitan areas with strict land-use regulation tend to have an annual productivity
increase of 0.6 percent less than would be expected with less stringent regulation.
Vermeulen and Van Ommeren: Wouter Vermeulen of the Netherlands Bureau of Economic
Analysis and Jos Van Ommeren (2008) of VU University (Amsterdam) performed an
econometric analysis that associated the slower employment growth of the Randstad (the largest
metropolitan region in the Netherlands, consisting of Amsterdam, Rotterdam, the Hague andother municipalities) compared with surrounding regions with the housing supply limitations
attributable to stronger land use regulation.
Mayo and Angel: Stephen K. Mayo and Shlomo Angel (1993, 108) cite research associating
higher unemployment rates in the north of England and Scotland with the UK's more restrictive
land use regulations.

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