TITLE: Is Water Policy Limiting Residential Growth? Evidence from California

AUTHOR: Ellen Hanak

PAGES: 38      DATE: October 2006

ABSTRACT: Rapid population growth and increasing costs of new water have led state and local governments throughout the American West to condition residential development on long-term water availability. Using original survey data, this paper examines the effects of water screening policies on California’s housing supply from 1994 to 2003. Fixed- and random-effects panel regressions indicate that these policies significantly slowed growth. However, impact fees based on the costs of residential water connections do not have this effect and may constitute a preferred policy. To enhance the social efficiency of screening policies, regulators may need to encourage the adoption of conservation-oriented water rates, which are associated with significant savings in residential water use.

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