Even though the economy appears to be strong right now, GDP and productivity growth, two key economic indicators, remain stubbornly below long-term averages. Some of this below trend performance can be explained by restrictive land use regulations, says the National Bureau of Economic Research in a recently released paper. Theodore Kupfer provides a nice summary of the paper in his blog on the National Review.
The study shows that states with more restrictive land use policies have higher land prices, which result in higher housing prices and commercial real estate rental rates. In turn, higher land prices lead to less in-migration, lower output, and decreased productivity growth relative to historical trends. The authors also found that the most productive cities, where jobs are plentiful, like New York and San Francisco, have the most restrictive policies. The study suggests that rolling back these restrictive policies would provide a big boost to overall GDP and productivity.
Changes to land use policies could be a tremendous benefit to the economy and would likely reduce or restrain rent growth for all types of commercial real estate. Some of the most likely advocates are supporters of affordable housing initiatives while owners of high-rent real estate are probable detractors. Regardless of your position, the nation has begun to pay more attention to rent growth and affordable housing as prices increase and affordability decreases with the improving economy. Although sweeping changes are unlikely, we'll probably hear more about land use policy in the coming years. Investors should keep an eye on these policies to gauge the potential impact to housing prices, rental rates, and real estate portfolios in their markets.
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