Is land‐use deregulation enough to deliver housing?: The case of institutional frictions in India

Abstract This paper examines whether land use deregulation increases housing supply in the presence of additional institutional frictions, such as ill‐defined property rights. India's urban land ceiling (ULC) laws, which put limits on individual ownership of private vacant land in the largest cities, were repealed during the 2000s. Using a difference‐in‐difference strategy, with a panel of 201 cities, we find that the reform did not lead to housing supply growth. We posit that disputes in ownership rights for vacant parcels rendered the ULC repeal to be ineffective. The disputes led to legal battles between governments and private landowners, freezing construction on vacant land. We find that, after the repeal, the number of land‐related legal proceedings in ULC‐enacting cities may have been substantially higher than in cities where ULC was never enacted. The findings underscore the role of institutional frictions in impeding or delaying the potential benefits of deregulation.