On the Theory of Growth Controls

Numerous empirical studies have examined the effect of growth controls on housing prices.’ These studies have used many different techniques ranging from hedonic price model estimation to paired comparisons but have all come to the same conclusion: growth controls raise the price of housing. In theory, there are both demand and supply side explanations (which need not be mutually exclusive) for these observed price differences. On the supply side, housing caps, zoning restrictions, limitations on the amount of developable land, and other forms of growth control may reduce the supply of housing over time. This, in turn, may produce scarcity effects which manifest as shifts (or other changes) in the housing supply curve and attendant price increases. On the demand side, to the extent that growth controls may reduce or internalize expected negative externalities and/or congestion costs associated with growth, controls may also produce amenity effects. Such amenity effects manifest as changes in the demand curve and likewise may be capitalized in land values (and wages), e.g., the price of a house rises as commute time falls.