Government Regulations and Housing Markets: An Index to Characterize Local Land Use Regulatory Environments for Residential Markets in the Houston - Galveston Area

Abstract

Affordability continues to be a major challenge for housing in America. According to the Joint Center for Housing Studies of Harvard University (JCHS), in 2006, 57 million households were moderately and severely cost burdened in America.

Although high housing prices and the lack of real income growth are cited as the main factors behind the housing affordability problem, it has been proven that land use regulations have some responsibility in this matter as well. Data from the JCHS suggests that between 2002 and 2005, the average appreciation percentage in housing prices was greater in most stringent regulatory environments when compared to less restrictive environments.

Despite this fact, and compared to analyses performed in other states, the relationship between the stringency of local land use regulatory environments and housing has not been fully addressed in Texas. The methodological approach used to characterize this relationship has been by means of the creation of a composite index measuring the stringency of local regulatory environments.

In response to this lack of evidence of the characteristics of local land use regulatory environments in Texas, this research created the first city-level index characterizing local regulatory environments for housing markets in the Houston-Galveston Area. The index was created taking into account both the different and the most recent practices for the creation of indices.

The index created proved to be a valid and reliable measure capable of taking into account the different aspects of the relationship between land use regulations and housing markets. Correlation procedures allowed the detection of a significant relationship between the stringency of local land use regulatory environments and local traits such as median family income, race distribution, poverty, and median housing values. After alternative indices were developed for a sensitivity and uncertainty analysis, the index proved to be a statistically robust measure against modifications on the different assumptions used for its creation.

Further research could use this new composite index in empirical analysis to look at the statistical effect of regulatory environments on variables such as housing values and rent prices.