Time Is Money: An Empirical Examination of the Dynamic Effects of Regulatory Uncertainty on Residential Subdivision Development

Douglas Wrenn, Postdoctoral Researcher in the Department of Agricultural, Environmental, and Development Economics (AEDE) at The Ohio State University, will present as part of the AEDE seminar series on January 15th in Room 105 of the Agricultural Administration Building (2120 Fyffe Road). His presentation will focus on "Time Is Money: An Empirical Examination of the Dynamic Effects of Regulatory Uncertainty on Residential Subdivision Development."

Abstract: Variations in regulatory costs over time and across different types of investment projects create non-diversifiable risk for developers who hold land. So-called implicit costs that arise from regulatory uncertainty are hypothesized to be potentially large, but empirical evidence is limited to a metropolitan-level study of aggregate housing markets by Mayer and Somerville (2000a). Using a unique micro dataset on parcel-level subdivision development, data on the timing of subdivision approvals by a local planning agency and a sample selection Poisson model, we test the effects of implicit costs that arise from uncertain subdivision approval on the timing, quantity and pattern of residential subdivision development. Consistent with theory, we find that these regulation-induced implicit costs reduce the probability and size of subdivision development on any given parcel. In addition, we find that systematic correlation between implicit costs and subdivision size has resulted in an implicit cost advantage for smaller subdivision projects that, in combination with zoning regulations that restrict the allowable size of exurban subdivisions, has resulted in a substantial increase in the likelihood of exurban development relative to larger-scale suburban development. We show that a hypothetical policy that reduces the differences in approval times across suburban and exurban areas generates a more concentrated pattern of development by increasing the average size of subdivision development and decreasing the incidence of exurban development. The results contribute to the growing supply-side literature on housing and land use, and provide a new explanation of scattered residential development as the outcome of heterogeneous regulatory costs and optimal land development.

This event is open to the public and no RSVP is required.  If you have any questions, please contact us.  

Post-Seminar Update:

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