How Restrictive Zoning Creates Housing Bubbles?
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One of the questions that often arises is why some cities experience such huge price swings, or bubbles, while others tend to remain fairly constant. Edward L. Glaeser of the Rappaport Institute for Greater Boston at Harvard University has put out a new study that ties housing bubbles to restrictive zoning. Cities such as Atlanta are much more open to development and thus have lower price swings than cities that are restrictive like Boston.
If you are a real estate professional or investor it is well worth taking the time to read the extract as it probably can guide your decision making processes in the future.
Here are the four major points that Glaeser makes in summarizing why the housing bubble impacts the Boston area so greatly and the impact of these bubbles.
- First, limits on new construction are responsible for the declines in Massachusetts’s population reported in the recent Census estimates.
- Second, restricting housing supply leads to greater volatility in housing prices.
- Third, significant price increases associated with restricted supplies of housing subsequently appear to lead to declines in employment and income.
- Finally, high housing prices change an area’s demographic mix.
Click here to read the whole report.



Comment by Ellen A on 19 February 2008:
This is nonsense. Restrictive zoning is a response to the rapacious behavior of developers who overwhelm communities with traffic and environmental impacts.
Comment by Tom on 19 February 2008:
Ellen
Are you sure? It would make sense that zoning restrictions limits supply and ability to use a scarce resource. Once that occurs the price goes up. If the price goes up beyond the ability of people to pay then it must correct. Thus the bubble.
Now there are more factors in play, but the reality is that restrictive zoning plays an intergral part in property values.
Comment by Daniel Bates on 19 February 2008:
Maybe people just don’t want to live where developers are allowed to run rampant and do whatever they want and thus the demand (and higher price) for restrictive zoning areas.
Comment by Anonymous on 10 June 2009:
Zoning is always designed to jack up property values to keep city officials in office. The best way to lose a mayoral election is to either nike zoning laws or to jack up the property tax multiplier. Strict zoning means a need for variances so developers contribute to campaigns of incumbents and not raising the multiplier keeps the votes coming.
We would need a federal law banning or greatly simplifying zoning - but over time you’ll end up with arcane FEDERAL zoning laws! Just look at EPA eco-”zoning” now. If you are a non-homeowner now, either hit the lotto or forget about it.