Building and Zoning Regulations

Many attempts have been made to pinpoint the inflationary effects of zoning and building code regulations. Because these regulations are locally generated, their importance varies from one locale to another and from one neighborhood to another. However, the most careful studies suggest that the cost burden of these regulations is much less than might be initially presumed. Moreover, the immediate cost-push effect of minimum standards may represent cost savings in the long run. For example, zoning laws usually require different types of land use to be segregated in various zones of a city; thus, industrial uses are generally prevented from infringing upon residential uses. This introduces an element of market stability with regard to future uses in the zone. Zoning, therefore, is perceived as a protection for property owners against uncertainty and the costs associated with it.

Large minimum lot size is often pointed to as a prime factor in raising the cost of development. The true effect of that kind of regulation is uncertain, however. John Weicher, formerly with the American Enterprise Institute, concludes that large lots are likely to divert the pattern of development rather than raise the overall cost of production; those who can only afford smaller lot sizes will build elsewhere. Weicher says: "... families seeking to buy their first house, who are likely to have relatively low incomes, are not being directly priced out of the new home market by lot size requirements."

Because building codes impose minimum standards of construction, they may introduce rigidities that inhibit technological innovations and improvements. They may also limit the use of industrialized or prefabricated production techniques, thereby driving costs up by requiring on-site handcrafted production methods. As with zoning regulations, however, the actual inflation of costs caused by building codes is unclear, and there is evidence to suggest that it may be less than might be expected. In the 1950s one study estimated that the overall effect was less than 1 percent. In the 1960s another study estimated that less restrictive building codes might result in a cost savings of about 2 percent. Later studies conducted for the President's Committee on Housing Costs (the Kaiser Commission) put the cost of building codes at between 1.5 percent and 7.5 percent. During the same period an analysis by George Sternlieb estimated that building codes contributed between 5 percent and 10 percent to housing costs. In the late 1970s a report by the U.S. General Accounting Office (gao) surveyed