Strategic Interaction and Spatial Multiplier Effects in Local Growth Control Policies: The California Housing Market

Since the 1970s, growth controls spread across many metropolitan regions in the United States. Several studies address the effects of local growth controls on housing markets, particularly its price effect, which is induced by rising construction cost, constrained housing supply, improved amenities, and market reorientation of homebuilders. However, only few studies explicitly address inter-jurisdictional spatial spillovers and strategic interaction of policy-makers of different jurisdictions in the design of growth control policies. This study focuses on two housing market outcomes, supply of new housing and market orientation, and utilizes a spatial econometric framework to systematically investigate local and global spatial spillovers giving rise to spatial multiplier effects. Preliminary results suggest that market orientation of new home building is primarily influenced by population growth and building permit caps, with positive spillovers at the local level only. For the supply of new housing, however, the models seem to suggest positive global spillover effects. However, there is additional indication of a potential relevance of including spatial heterogeneity in the model specification. Specifically, a north-south disparity or a coastal-inland disparity may have non-negligible impacts with concurrent implications for policy-making