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The role of regulation in affecting
housing supply and prices: Part of the
solution, part of the problem, or both?
UCLA Lake Arrowhead Symposium, 2007
Marlon G. Boarnet
Professor of Planning, Policy, and Design
University of California, Irvine
Preliminary Draft: Do not distribute or cite
without permission of the author.
Median Home Sales Price, California and U.S.,
1968-2006
median home sales price
$600,000
$500,000
$400,000
California Median
$300,000
U.S. Median
$200,000
$100,000
04
20
00
20
96
19
92
19
88
19
84
19
80
19
76
19
72
19
19
68
$0
year
Source: California Assoc of Realtors and National Assoc of Realtors
California Population Growth
and Building Permits, 1980-2006
•
•
•
•
•
Pop growth = 13,662,000
Building Permits = 4,372,221
Pop growth / Building Permits = 3.12
Avg CA Household Size, 2006 = 2.93
Implied 26-year building permit shortage =
290,578
• Percent undersupply = 6.23%
$450,000
$400,000
$350,000
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
U.S. median home
price
High Desert median
home price
Riv/San Bern median
home price
2006
2003
2000
1997
1994
1991
1988
1985
Sacramento median
home price
1982
median sales price, $'s
Median Home Price, U.S. and Lower Priced
California Regions
year
Source: California and National Association of Realtors
Review
• Over past four decades, California median
home price has gone from 1.15 U.S. median
home price to 2.51 U.S. median home price
• Annual percent appreciation, 1968-2006:
– California: 8.72%
– U.S.: 6.52%
• Increase in house prices has been statewide
• Is land use regulation part of the cause?
Why Important?
• Housing is primary means of wealth creation for
most Americans
• California is a trendsetter for U.S.
• Land use (building, housing, associated services)
constitutes approximately 19% of GDP in 2006
• For comparison, health care was 12% of GDP in
2006
• Land use is heavily regulated, but uniquely
overlooked
The Emerging Deregulation
Consensus
• “economic” viewpoint – loosen land use
regulations
• Planning argument – land use regulations
interfere with individual choice
• Both views, land use regulation is an alien
entity
Supply and Demand 101
S2
P
S1
P2
P1
D2
D1
Q
Why Regulate Land Use?
Three traditional views of the purpose of
land use regulation
– Planning/regulatory viewpoint
– Economic viewpoint
– Normative/aesthetic viewpoint
A Closer Look at Justifications
for Land Use Regulation
• Managing externalities or common pool
resources (incompatible land uses, traffic,
noise, pollution)
• Coordination Function / City Building
• Externality management is overweighted,
coordination function is underappreciated
• Need for planning to create choices that
market would not otherwise create
Example: Irvine Business Complex and
Mixed Use Living in Orange County
• Dating from 1970s, exclusively business, office,
light industrial
• As of 2000, over 150,000 jobs
• Approximately 2,760 acres
• Early 1990s plan to allow mixed-use and
residential development
• As of mid-2006, 13,203 residential units
approved, in construction, or in permitting process
in IBC
• Implies a residential IBC population larger than
the entire City of Irvine in 1971.
Conceptual
Street Network
Irvine Street
Blocks
Santa Monica
Street Blocks
San Francisco
Street Blocks
Existing Street Network
Source: Irvine Business Complex Mixed Use Community Draft Vision
City of Irvine, May 3, 2005
Prioritizing Land Use Regulatory
Functions
• Lower Order Land Use Regulatory Functions:
Managing common resource pool externalities
• Higher Order Land Use Regulatory Functions:
Coordination, City Building, Creating choices that
would not otherwise exist
• In California, 1970s onward, lower order
functions elevated to priority over and eventual
exclusion of higher order functions
Moving the Pendulum Back
• Land use regulation is dominated by economic
view
• Need to return to normative/aesthetic view as a
basis for land use regulation
• An inherently political problem – an exercise in
democratic governance – whose norms?
– Land use reg as vibrant direct democracy?
– Land use reg as an immature governance structure?
Elements of an Institutional Land
Use Regulatory Framework
Problem 1: Reduce the scale of land use
regulation.
• Need for diversity of city and neighborhood
types to match diversity of citizen
preferences
• Municipalities are too large
• Land use regulation at the scale of 10,000 to
20,000 persons
Elements of an Institutional Land
Use Regulatory Framework
Problem 2: Restrict ability of locales and citizens
outside of a community to elevate lower order
planning function over higher order planning
function.
• Neighboring jurisdictions or individuals cannot
claim harm from actions that interfere with
common resource pool.
• Full ability to bargain over harm (traffic, air
quality, and the like) within small neighborhoods,
no ability to claim harm across neighborhoods.
Elements of an Institutional Land
Use Regulatory Framework
Problem 3: Higher level caretaking of
common resource pool.
• Strong regional provision of (and financing
for) infrastructure.
• Strong oversight and regulation of
externalities (e.g. state regulation of air and
water quality).
Implication: A Changing View of
Regionalism
• Empowerment of local land use plans, at an
atomized scale
• Region adapts to the local
Will this reduce house prices?
• Well …. Land use regulation is part of the
problem of house price appreciation, and
part of the solution.
• Rethinking of “Why regulate land use” is
needed.
• Reforms should lead to loosening of land
supply.