Misunderstandings
about Planning Restrictions
Summary
Many researchers
have found that planning regulations restrict the supply of housing and hence
increase its price. This paper discusses some objections to this finding.
I argue that most
of these objections reflect simple misunderstandings. They are either
empirically unrealistic or are not relevant to the view that planning raises
prices.
Specifically:
·
‘High prices have causes other than planning,
such as low interest rates or immigration’.
o
These other explanations are important, but they
are complements, not alternatives. High prices reflect the interaction of unresponsive
supply (due to planning) and rising demand. If supply was more responsive, then
high demand would lead to more dwellings instead of higher prices. (Section 4).
·
‘High prices accompany high density’
o
Simple correlations confuse the direction of
causation. When the relationship is examined closely, as in leading journals,
researchers find that restrictive planning substantially boosts prices. The
consensus among experts is strong. (Sections 3, 4c).
·
‘Construction has recently outpaced population.’
o
The criterion for assessing whether the stock of
housing is adequate should be whether price equals the marginal social cost of
supply. It is not comparing the flow of new construction with population fluctuations
or past experience. (Section 5).
·
‘Tall apartment buildings would reduce local
amenity’
o
Studies find that externalities from high
density are small or positive. Nearby house prices often increase in value
following large construction projects. As judged by willingness to pay, increased
density does not significantly harm local amenity. (Section 7).