Measuring the Degree of Land Use Restrictiveness in Largest Finnish Cities

Increasing amount of empirical evidence has shown that the local land use regulatory environment has substantial effects on the housing market. It is widely acknowledged, however, that measuring the degree of land use restrictiveness is challenging. The heterogeneity of regulations, as well as the unavoidable difficulty of assessing the relative importance of different types of regulations, are the primary reasons for that. Another often brought up shortage of the existing land use regulation measures is the lack of temporal dimension, which makes it difficult to separate the effects of regulation from other local characteristics that might correlate with land use regulation. This study is set to reassess how to measure the local land use regulatory environment, and possibly, to address some of the shortcomings previous studies have reported. Empirically, the focus of this study is on the Finnish planning system, where land policy and planning decisions made at the municipal level most strongly control land use. Within a set of legal boundaries, each municipality independently decides which land policy instruments to employ, and further, by utilizing the so-called planning monopoly, lays planning restrictions that guide the (residential) development of land. To construct a measure of the restrictiveness of local land use, this study combines data on municipal land use planning and policy decisions for some 30 largest cities in Finland derived from multiple sources. Interviews with key municipal representatives responsible for local land policy actions are used as a primary data source. The interviews covered several themes with the aim to capture differences in the land use policy and planning actions across cities. The study also utilizes official statistics and municipal documents, such as strategies of land use and development, land use agreements and financial documents for measuring and modeling the degree of local land use restrictiveness. Measuring the impact of land use regulation and planning on housing markets has been a significantly growing topic and the local land use regulatory environment is understood as an important contributor to the elasticity of housing supply. Yet, the formulation of a quantified measure for the restrictiveness of local regulation has received less attention, especially in the context of statutory planning systems. This study addresses this gap and outlines a new kind of approach to measure local land use environments that builds on data from multiple sources.