Impacts of Water-Related Building Moratoria on California's Housing Crisis
This study examines the impacts of building moratoria enacted in California to address water shortages on new housing supply and prices.
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California faces two intertwined crises: a housing shortage and water scarcity. Efforts to address housing affordability involve increasing housing supply, while water management policies mandate long-term supply planning and limit large developments in areas without sufficient water. However, water-related building moratoria, enacted during shortages, restrict housing development, potentially conflicting with the state’s affordability goals. This study examines the tradeoffs of these moratoria by analyzing their impact on housing supply and prices using combined data on the location and timing of California's water-related building moratoria (2010-2018) with parcel-level housing and sales data. Using an event-study difference-in-differences model, it compares new home builds before and after moratoria for systems that implemented them versus those that did not. The same approach is used to analyze how moratoria-driven supply restrictions affect housing prices, replacing the outcome with property sale prices.
The results show that California's housing moratoria significantly affect the number of homes built, with the impact varying based on the timing and whether the policies are state- or locally mandated. By the fourth year after enactment, housing supply drops by an average of 91%, or 5.543 units annually. While moratoria have a long-term effect on housing supply, they do not appear to impact housing prices.
California is facing a housing affordability crisis, which has been partially blamed on building moratoria enacted to address the state’s severe water shortages. This study uses data on the enactment of moratoria in California from 2010 to 2018 to examine their impact on new housing supply and prices. We find that the short-term impact of the moratoria on housing supply is small, but the effect grows over time and becomes more significant in later years, especially for locally mandated moratoria. We do not, however, find that these supply shocks have had an impact on housing prices.