A New Measure of the Local Regulatory Environment for Housing Markets: Wharton Residential Land Use Regulatory Index

Abstract

The responses from a nationwide survey of residential land use regulation in over 2,600 communities across the U.S. are used to develop a series of indexes that capture the stringency of local regulatory environments. Factor analysis is used to combine the component indexes into a single, aggregate measure of regulatory constraint on development that allows us to rank areas by the degree of control over the residential land use environment. We call this measure the Wharton Residential Land Use Regulation Index (WRLURI). Key stylized facts arising from the data include that there is a strong positive correlation across the subcomponents that make up our regulation index. Practically speaking, this means that highly (lightly) regulated places tend to be highly (lightly) regulated on virtually all the dimensions by which we measure regulatory stringency. The stringency of regulation also is strongly positively correlated with measures of community wealth, so that it is the richer and more highly-educated places that have the most highly regulated land use environments. However, the stringency of regulation is weakly negatively correlated with population density. The fact that the densest communities are not the most highly regulated strongly suggests that the motivation for land use controls is not a fundamental scarcity in the sense that these places are 'running out of land'.

Keywords: zoning, housing markets, local regulation

JEL Classification: R14, R31, R38, R52