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Regulating housing vacancies away? The paradoxical effects of mismatch

Cheshire, Paul and Hilber, Christian A. L. and Koster, Hans R. A. (2015) Regulating housing vacancies away? The paradoxical effects of mismatch. SERC discussion papers, SERCDP0181. Spatial Economics Research Centre, London, UK.

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Abstract

Policy makers agree that vacant houses are undesirable. Moreover the existence of empty houses is used as an argument for allocating less land for new construction. So higher vacancy rates tend to trigger tighter restrictions on the supply of land. Such tighter restrictions lead to higher prices and, because of the incentives this creates for occupying housing, to lower housing vacancies (‘opportunity cost effect’). There is, however, a second effect ignored by planners: more restrictive planning policies impede the matching process in housing markets so leading to higher vacancies (‘mismatch effect’). Which of these two forces dominates is an empirical question. This is our focus here. Addressing potential reverse causation and other endogeneity concerns, we use a unique panel data set on land use regulation for 350 Local Authorities in England from 1981 to 2011. Our results show that tighter local planning constraints increase local housing vacancy rates, suggesting that the mismatch effect dominates. A one standard deviation increase in local regulatory restrictiveness causes the average local vacancy rate to increase by about 0.9 percentage points (23 percent). The results are economically meaningful and show that pointing to the existence of vacant houses as a reason for being more restrictive in allocating land for housing is counterproductive.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.spatialeconomics.ac.uk/
Additional Information: © 2015 The Authors
Divisions: Spatial Economics Research Centre
Subjects: H Social Sciences > HC Economic History and Conditions
JEL classification: R - Urban, Rural, and Regional Economics > R1 - General Regional Economics > R13 - General Equilibrium and Welfare Economic Analysis of Regional Economies
R - Urban, Rural, and Regional Economics > R3 - Production Analysis and Firm Location > R38 - Government Policies; Regulatory Policies
Sets: Research centres and groups > Spatial Economics Research Centre
Collections > Economists Online
Date Deposited: 15 Jan 2016 11:41
Last Modified: 15 Jan 2016 11:41
Funders: Economic and Social Research Council, Department for Business, Innovation & Skills, Welsh Government
URI: http://eprints.lse.ac.uk/id/eprint/65014

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