The Effect of Land Supply for New Homes on Residential Investment and House Prices 
In recent years, the United States has experienced house price growth outpacing income growth, low supply of new housing units, and flat to negative growth in construction productivity. A large body of research argues that land-use regulations play a central role in explaining these patterns by constraining housing supply. This paper explores a hypothesis that complements the regulatory explanation: In many high-cost markets, large plots of buildable land are scarce, constraining the amount and efficiency of residential construction. Despite its importance for evaluating housing policy, little comprehensive research has studied this alternative explanation. This is partly because there is limited detailed historical parcel-level data on land available for residential development. The paper addresses this data challenge by using a parcel-level data set to measure the buildable-land distribution in New England and track its development from 2007 to 2021.
Key Findings
- Most buildable parcels in New England are small and surrounded by developed land, making scale difficult to achieve. As a result, most of the region’s housing markets have few large buildable parcels—both in absolute terms and relative to housing markets in the southern United States.
- Large buildable parcels have become scarcer over time. They are less available in more populous markets and become scarcer as populations grow.
- Markets where large buildable parcels are scarcer experience more rapid house price growth and have lower development relative to house price growth.
- Counterfactual simulations with different returns-to-scale assumptions show that both the amount and distribution of buildable land matter: Recombining fragmented parcels into larger lots lowers house prices, increases supply, and raises construction productivity, even when total acreage is held fixed.
Implications
Regulatory constraints and physical land fragmentation both contribute to housing supply constraints in built-up markets. Even with fewer regulatory barriers, the fragmentation of buildable land across small, disjoint parcels would still constrain construction productivity and housing supply. Policies that increase the availability of large development sites may have greater impact per acre than policies focused solely on infill development of small plots. This supports initiatives that redevelop large, underused government, commercial, or industrial sites. By contrast, incremental development might fragment large parcels into smaller ones, potentially reducing the efficiency of future development. For policymakers, the findings demonstrate that both regulatory reform and policies targeting land fragmentation may be needed to meaningfully expand housing supply in built-up markets.
Abstract
We use parcel-level data to provide new facts on the amount and distribution of land available for residential development, focusing on New England housing markets from 2007 to 2021. Most buildable parcels are small, and large buildable parcels are scarce in most geographic markets. Large buildable parcels are less available in more populous markets, become scarcer as populations grow, and have become scarcer over time. Markets with fewer large parcels experience higher house price growth and residential development that is lower relative to house price growth. We present evidence consistent with developer returns to scale in parcel size, meaning that fragmentation of buildable land across small, disjoint parcels increases house prices by reducing construction productivity and making development less responsive to demand. In counterfactual simulations from a simple calibrated model, we show that recombining small buildable parcels into larger ones while holding the total amount of buildable land fixed would increase supply, increase construction productivity, and slow house price growth.