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Affordable Housing , Community Development , Housing Policy Briefs , Reports and Publications

Brookings Report Looks to Econ. 101 – There Are Other Forces at Play

3 May 2017

Brookings Institution released a report analyzing the impacts of restrictive land use regulations on economic development in the United States. Looking to historical construction trends, the report examines inconsistencies in housing costs in areas of differing degrees of density and wealth. 

The report uses the "Minimum Profitable Production Cost” (MPPC), which looks to the physical cost of construction as a metric to compare housing costs in different localities. Among the research findings, Brookings finds that while many areas of the United States are affordable, the most productive areas are unaffordable. Further, while the historical trends would suggest booming economic areas would be met with increased creation of housing – allowing more people to live in the economically successful areas – that is not the case in the United States. Rather, there has been a shift in building in places where it is easy to build, not those measured by economic success. 

The report continues to posit that the country’s high housing costs are a result of restraints on production, noting that "Economics 101" suggests that "[i]f demand alone drove price, then we should expect to see places that have high costs also have high levels of construction. The reverse is true. Places that are expensive don't build a lot and places that build a lot aren't expensive."

Several recommendations are laid out for states to address their skewed construction costs and housing affordability challenges, while acknowledging the difficulty of regulating land use due to the local nature of authority. Brookings recommends that states conduct cost-benefit analyses on current land use regulations, and require towns to do the same. Additionally, the report recommends states look to models such as Massachusetts Chapter 40B, or incentive programs, to learn more about encouraging production. 

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