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

Jan. 17, 2013

On Tuesday, January 15, 2013, AEDE’s Douglas Wrenn, Postdoctoral Researcher and AEDE Ph.D. recipient, presented his research “Time Is Money: An Empirical Examination of the Dynamic Effects of Regulatory Uncertainty on Residential Subdivision Development" to kick off the AEDE Seminar Series for the spring 2013 semester.

Dr. Wrenn, who studies the interdependence of urbanization, public policy and ecosystem services and the implications for policies that seek to promote long-run sustainability, has conducted a significant amount of research on land and housing markets to understand how micro-scale interactions between policy and individual decisions impact aggregate outcomes. Dr. Wrenn is particularly interested in how land use outcomes impact the provision of public and ecosystem goods and services, and how policies can be implemented or improved to remedy these market failures.

In “Time Is Money", Dr. Wrenn aims to examine the impact of implicit costs on the decisions of land developers regarding the timing and intensity of residential subdivision development, as well as examine the influence of heterogeneous implicit cost on the spatial pattern of land development. His research on this topic was supported by the U.S. Forest Service Northern Research Station, the National Science Foundation, and the James S. McDonnell Foundation.

At the start of his research, based on existing literature in the field, Dr. Wrenn hypothesized that implicit costs are a result of uncertainty over subdivision approval times and that increases in these implicit costs will both decrease the likelihood of development on a given parcel of land and reduce the intensity of development on this land.

To conduct his analysis Dr. Wrenn used a micro dataset on parcel-level subdivision development over a 13-year time period beginning in 1995 from a rapidly urbanizing county within the Baltimore, Maryland region.  He also used data on the timing of subdivision approvals provided by a Baltimore, Maryland planning agency.  Additionally, he used a sample selection Poisson model to test the effects of implicit costs that arise from uncertain subdivision approval on the timing, quantity and pattern of residential subdivision development.

In his research he found that, consistent with his original hypothesis, regulation-induced implicit costs reduce the probability and the size of subdivision development on any given parcel of land. For example, the data analysis showed that a one month, or 10 percent, increase in the expected approval time resulted in a significant, but small, effect on reducing the average probability of development by 0.13 percent, and a significant and more substantial reduction in the average size of the development by 0.65 lots, or 5.6 percent.

The systematic correlation between implicit costs and subdivision size resulted in an implicit cost advantage for smaller subdivision projects. As a result, and coupled with zoning regulations in the study region that restrict the allowable size of exurban subdivisions, he found that land development patterns resulted in a substantial increase in the likelihood of exurban development relative to larger-scale suburban development.

In his research Dr. Wrenn suggests that these two factors – the effects of implicit costs that reduce the optimal size of development and zoning regulations that restrict the size of exurban subdivisions – have fostered a clear pattern of scattered subdivision development in the exurban areas of his research study.

In his work Dr. Wrenn offers a hypothetical policy to reduce the differences in approval times across suburban and exurban areas and generate a more concentrated pattern of development.  He does this by increasing the average size of subdivision development and decreasing the incidence of exurban development. 

Dr. Wrenn’s findings contribute to the growing supply-side literature on housing and land use. Additionally, his research offers a new explanation of scattered, low-density residential development as the outcome of heterogeneous regulatory costs and optimal land development decision-making.

Image: Douglas Wrenn presenting at the January 15, 2013 AEDE Seminar.

January 17, 2013