Red tape and house prices

Steven Landsburg’s latest Slate column is based on work by Ed Glaeser and Joe Gyourko.

Instead of the traditional formula "housing price equals land price + construction costs + reasonable profit," we seem to be seeing something more like "housing price equals land price + constructions costs plus reasonable profit + mystery component." And, most interestingly, the mystery component varies a lot from city to city.

The mystery component turns out to be zoning rules, and proxied quite well by the length of time it takes to get a permit. In September, the World Bank’s Doing Business project will be publishing data on the cost of building inspections in 150 countries; it already has data on the cost of firing workers, starting a business, going through the courts, and more.


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