Abstract
Prior to the housing market and economic crash beginning in 2007, the State of California had historically experienced higher housing costs than a majority of other states in the nation, with many of the major metropolitan areas topping the list of most expensive places to live in the county. Housing affordability is of significant concern to policymakers and Californian residents who cannot afford decent affordable housing. It is critical to identify what factors cause housing costs in California to be abnormally high and then address these issues with appropriate state and local government actions. The following thesis is one such attempt to identify what factors drive the cost of housing. Given the changed conditions in the housing market following the burst of the housing bubble in 2007, this thesis attempt to determine what effect, if any, and how strong an affect, local land use ordinances have on the cost of housing in a post-housing market crash environment. I use a regression analysis with data set on the sale of over 33,000 individual housing units in a six-county, 16-city area in the Sacramento region. The regression controls for factors such as house size characteristics, house structural characteristics, house vintage characteristics, neighborhood characteristics, foreclosure characteristics, location characteristics, and land use ordinance characteristics. The key explanatory variable in this thesis is a proxy for the stringency of the local land use regulatory environment. I developed the proxy by dividing the number of building permits issued by a city or county in the 2008 calendar year by one year worth of state regional housing need (Regional Housing Needs Allocation or RHNA). Results indicate a statistically significant and theoretically sound regression model consistent with existing literature. For every one-unit increase in building permits issued to meet required regional housing need within a jurisdiction, the cost of housing decreases by 0.8%. The more building permits issued in a jurisdiction has an even greater effect on homes in the bottom of the housing market. Specifically, for every one-unit increase in building permits, the cost of a home below the median price decreases by 1% and by 5% for those homes one standard deviation away from the average-priced home in the greater Sacramento area. This thesis supports previous findings on the relationship between local land use ordinances and housing costs with new insights into a post-housing market crash environment. The results of this thesis should serve as useful information for local elected officials in the greater Sacramento region when considering the impacts of local land use decisions on the development of housing and ultimately on housing affordability.