Built Out Cities? A New Approach to Measuring Land Use Regulation

We introduce a new way to measure the stringency of housing regulation. In lieu of a standard regulatory index or a single aspect of regulation like Floor Area Ratio, we draw on California cities’ estimates of their own total capacity for new housing. This measure of regulatory buildout potential is available by virtue of California state law. We show, in regressions analyzing new housing permitting, that it has associations with new supply that are as large or larger than conventional, survey-based indexes of land use regulation. We also show that unbuilt capacity interacts with rent to limit housing production in ways conventional measures do not. Specifically, interacting our measure with rent captures the interplay of regulation and demand: modest deregulation in high-demand cities is associated with substantially more housing production than substantial deregulation in low-demand cities. These findings offer a more comprehensive explanation for the historically low levels of housing production in high cost metros