How Minimum Lot Size Shape Cities & Home Prices

A new NBER working paper, Minimum Lot Size Restrictions: Impacts on Urban Form and House Price at the Border, by Joseph Gyourko & Sean McCulloch, estimates minimum lot sizes’ impact on housing prices.

What they found: Properties located just 100 meters into stricter land jurisdictions are typically set on considerably larger plots, and slightly more expansive structures are pricier by approximately $30,000.

The implication? Restrictive minimum lot sizes dictate house prices and shape urban layouts, which might redefine the overall nature of housing stock, not merely the single-family homes’ quality.

Details

A deeper dive, referenced in our online appendix, explored the presence of multifamily housing in areas with tight minimum lot size rules related to single-family homes. Even though data confines prevented a border analysis like in previous tables, Census data still offered vital insights.

Key findings:

• Communities with the most rigid regulations see a roughly 7% dip in multifamily housing stock compared to areas with laxer rules. That’s a significant quarter of a standard deviation difference in our jurisdiction sample.

• Such patterns echo findings by Cui’s paper (The Emergence of Exclusionary Zoning Across American Cities), suggesting that past adoption of minimum lot size rules might lock regions into specific land use and housing structures. Comprehensive panel data would give more depth, but the paper’s initial results indicate it’s a worthwhile avenue to explore.

Why it matters

Regulations and their impact on housing aren’t static. Data spotlighted in the online appendix pinpoints a distinct effect on house lot size post-1970. Homes in highly regulated areas (by 2006 or 2018 measures) had lots over 2,000 sq. ft. larger than their counterparts in loosely regulated zones. Post-1970, this difference ballooned to almost 4,000 sq. ft. The inference? A pivotal change in density regulations occurred, possibly around 1970, with subsequent data required to unravel the story.

The bigger picture

The discovery of grander homes in more regulated regions hints that regulations may dictate where premium properties spring up. How demographics have influenced or changed these regulations in response to them remains an unsolved puzzle in the study and warrants deeper investigation.

Moreover, the increasing attention to density limits should help others examine other regulatory factors that might sway broader housing dynamics. Regulations are diverse, and it’s crucial to discern their unique impacts on housing markets and the greater urban context.

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