The Power of Developers: Evidence from California

• In Event: Business Influence around the World

Abstract

The goal of this paper is to provide evidence on the influence wielded by the real estate industry on local housing policies. We study whether the representation in the city council of politicians with professions related to this industry (i.e., land developers, home builders, and real estate agents) influences the number and type of building permits issued and the growth in housing prices. We focus on the case of California during the period 1995-2019. We rely on a close-elections Regression Discontinuity Design for identification. We compare the marginally winning developers (non-developers) with the marginally losing non-developers (developers). We find that the entry of a developer in the city council increases the number of housing units permitted during the following four years by 65% and reduces the growth rate of housing prices during the same period by 1.7 p.p. The effect is larger for single-family homes and in places with smaller city councils, lower opposition to development, lower construction costs and less stringent regulations.

Author

• Albert Solé-Ollé, University of Barcelona