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Knowledge Base

The Economics of House Hunting Envy: How Regulations that Restrict Supply Harm Home Buyers

What is a building permit?

A building permit, sometimes also known as a construction permit, is an authorization from the relevant governing board, usually a local government, for a land owner to engage in some form of building or construction on their property. Permits could be for building of new structures or just for renovations to existing structures. Because permits have to come before construction begins, the number of permits issued is considered a predictive indicator of development within a certain area.

What are some barriers to building new houses?

Common barriers to building new homes include 1) a local political climate that is anti-growth (commonly led by “not-in-my-backyard” groups or NIMBYs); 2) onerous land use or zoning rules that place excessive requirements on what can be built, how it must be build, and where it can only be built; and 3) local or state tax systems that disincentivize housing over other types of buildings, such as commercial or retail spaces.

What is the solution to housing unaffordability for a region?

The only long-term, sustainable solution of housing unaffordability is to correct the supply and demand mismatch.  This typically means encouraging the development of new housing supply.  If the solution isn’t correcting the supply-demand mismatch, then it will only be a short-term fix and could make the problem much worse.