What follows is an introduction. You can read the whole paper at the Federalist Society's Regulatory Transparency Project website.
In every American city, a labyrinth of rules determines the types and locations of permissible construction. These laws and regulations limit housing supply and increase housing costs. In this paper, we examine the current judicial standards that permit localities to restrict development without consideration for the costs of land use regulations; we then describe several potential legislative solutions available to state and local policymakers.
What do we mean when we refer to land use restrictions? We mean minimum lot size requirements, parking requirements, bans on multifamily housing (ranging from bans on duplexes to bans on apartment buildings), and other restrictions that limit housing construction and drive up prices. Such residential land use restrictions strain household budgets because they limit the stock of affordable housing.
Home prices will spike as regional demand for housing increases if local land use rules prevent housing construction from keeping pace with consumers’ preferences. Housing construction is ultimately driven by supply and demand. However, the incongruity between home prices and construction costs is a relatively recent phenomenon. Starting in 1985, house prices started rising markedly faster than the cost of construction might suggest. Today, nearly half of households that rent are housing cost burdened, meaning that they spend more than 30 percent of their income on rent. Low-income people living in high-cost cities bear the most direct costs of land use regulations. Insufficient housing supply and accompanying high prices are even contributing to high and rising homelessness rates in the most expensive states.
The best solution to the problem of housing affordability is letting people build more of it; this puts more housing on the market and pushes down housing prices. One study finds that the construction of a large new apartment building lowers rents in the immediate area by five to seven percent.
Land use restrictions have broad effects. Limiting the amount of housing that can be built near the most productive labor markets restricts the number of people who can benefit from local employment and educational opportunities. In turn, land use regulations limit economic output and income mobility.
One contributing factor to this problem that we describe below is that the United States Supreme Court has interpreted the Constitution to the detriment of private property owners. Residential land use restrictions limit what a property owner can do with property that he or she owns. Even though property rights are constitutionally protected—indeed, their protection was of paramount concern to America’s Founders—the courts have not always given great weight to these constitutional guarantees. Therefore, if policymakers wish to seriously address this problem, they must take the reins.
Given these dynamics, we evaluate some reform options that offer cause for hope. Arizona’s Proposition 207 is a bright spot. Arizona law requires proportional compensation in the event of diminution of value caused by post-enactment regulation. This requires the public to bear the costs of the measures their representatives enact, rather than letting those representatives hand those costs off to small numbers of private citizens. We also point to other reforms that state and local policymakers have implemented to increase development rights, address the costs of existing land use regulations, and improve housing affordability.