Restrictive Land Use Regulations and Economic Performance

Abstract

There is emerging evidence that restrictive land use practices can misallocate economic activity across space and generate significant costs for regional and national economies. Work in this area has considered how land use regulations affect the supply of housing within, and the efficient migration of workers among, regions. According to some estimates, by restricting migration to the most productive regions in the United States, land use regulations generate an annual cost to the economy of up to US$1.95 trillion or 13.6 percent of gross domestic product. Yet this focus on labor migration provides an insufficient framework for understanding how land use regulations can shape economic performance. First, current approaches minimize the costs that could arise if firms and industries are misallocated across space. Second, current work overlooks the costs that might arise if land use restrictions misallocate economic activity within regions. Land use regulations can generate significant costs when their administration is designed to maximize the welfare of individual communities rather than the economies of regions and nations. This article will evaluate current research into, and provide a more complete assessment of, the welfare costs associated with restrictive land use practices.