sector, where approvals and authorizations are ignored. The time required to obtain permits and the associated uncertainty of the process result in higher transaction costs and fewer transactions. Mayer and Somerville’s (2000) study of U.S. regulations estimates that a metropolitan area with a 4.5-month delay in approval and two different types of growth-control restrictions would have about 45 percent less construction than a metropolitan area with a 1.5-month delay and no growth management policy. Similar studies on the impact of approval delays have not been undertaken for developing countries, but the average time for approval of construction permits, according to Doing Business surveys, is about 7 months, ranging from 5 months in the Middle East and North Africa to 8 months in South Asia. These averages measure the time required to go through the processes, so they probably understate the actual time it takes to obtain approvals.

# **_The impact of regulations on supply_**

The impact of regulatory standards on affordable housing supply is a widely recognized, if rarely acted on, constraint in developing countries. Analysis of housing programs in Malaysia in the 1990s demonstrated that regulations discourage private developers from serving the low-income market. Even where developers received substantial subsidies through low-cost land and reduced infrastructure standards, the subsidies were outweighed by the costs of subdivision regulations and pricing restrictions imposed by the program. Under these circumstances, developers were willing to participate in programs for low-income housing only in exchange for easing of planning approvals on other sites.<sup>31</sup> Yet, Bertaud and Malpezzi’s (2001) analysis of site development standards (FAR and percentage of developable land) in Malaysia suggests that if restrictions on construction and roads were eased to increase salable land to 55 percent of the developable land, this would double developers’ profitability ratio and provide sufficient incentives to shift their activities to the lower income market. Similar analysis of the impacts of restrictive density standards in Brazil also indicates that relaxing standards would reduce costs for informal land developers. However, attracting these developers to the formal housing market in Brazilian cities requires further reductions in titling and infrastructure development costs.

The impact of land use regulations on housing supply and prices in developed countries has been studied extensively in the economic literature. Glaeser and Gyourko’s (2003) review of the relationship between zoning regulations and housing supply in many U.S. cities suggests that heavily regulated cities have both lower levels of construction and higher prices. Similarly, their study of New York City attributes the high cost of housing to regulatory restrictions on building heights, which resulted in lower construction levels. Glaeser, Gyourko, and Saks (2005a) take the arguments on regulation further in their study of housing and urban growth. They suggest that cities with restrictive regulatory regimes are less able to absorb demand arising from increased productivity. In such cities, growing demand as a result of productivity increases translates into higher prices and less output. This implies that severe restrictions on housing production in cities experiencing high demand may ultimately push growth out to other areas, which may not be as productive.

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