The Effect of a minimum lot size reduction on residential property values: the case of Houston

Abstract

The reform of onerous land use regulations in the U.S. is finally having its moment in the spotlight as priority access to billions of dollars in federal grant money is being given to cities willing to make their land use regimes less exclusionary with the hope that this will ease the rising cost of housing (The United States Government, 2022). However, empirical studies on the effects of city-wide land use reform are few and far between due to the fact that examples are so rare. One of the few exceptions is Houston’s 1998 and 2013 reduction of its mandated minimum-lot-size for single-family homes. Given that the this naturalexperiment in housing reform remains astoundingly under studied, this paper takes the initiative to estimate the effect that Houston’s minimum-lot-size reduction had on residential property values in the city using appraisal data and a difference-in differences approach. The results show that that the market-value of single-family homes in Houston rose relative to those of the suburbs and that this was driven by an increase in the value of land. Although these results cannot say to what degree reducing minimum-lot-sizes would improve housing affordability, they do point to a generally more optimal use of land when size restrictions are relaxed.