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Housing, Benjamin Powell and Edward Stringham
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This indicates that intrinsically valuable land is not the main cause of high prices. Economists who have studied the issue conclude that the scarcest input for housing is government permission to build. Econometric estimates indicate that only 10 percent of the gap between construction costs and home prices is caused by intrinsically high land prices; the other 90 percent is caused by zoning and land-use regulations. Glaser and Gyourko conclude that “land-use regulation is responsible for high housing costs where they exist” (p. 30). Another study reached the same conclusion using a different methodology. Stephen Malpezzi (1996) constructed an index of seven different land-use regulatory variables and ranked fifty-six different metropolitan areas according to how strictly land use was regulated. Regulatory variables included measures such as changes in length of approval time, time required to get land rezoned, amount of acreage zoned for residential development, and percentage of zoning changes approved. Malpezzi found that a change from a lightly regulated environment to a heavily regulated one increased home values by 51 percent and decreased the number of permits to build by 42 percent. Home ownership rates also declined by about ten percentage points. Regardless of methodology, evidence shows that areas with high levels of regulation have higher housing prices, higher rents, and lower home ownership rates.