Housing Prices & Labor Shortages: The Role of Land Use Regulation

In this analysis, I examine the impact of housing prices on labor shortages by estimating the effects of monetary policy shocks and land use regulation (LUR). In the wake of the COVID-19 pandemic, housing prices and labor shortages have increased across the U.S. Using regional data on job postings, available workers, housing prices, LUR, and nations monetary policy shocks, I estimate the relationship between LUR, monetary policy, and labor shortages though a difference-in-differences continuous treatment model estimated through local projections. The interaction between LUR and monetary policy is leveraged to address the endogeneity between housing prices and labor shortages. My findings reveal that regions with stricter LUR experience significantly higher increases in housing prices and labor shortages following an expansionary monetary policy shock. The impact on housing prices is most profound 15 months following the shock, while the effect on labor shortages is most significant between 36 and 48 months after the shock. I find that the labor shortages are driven by the significant increase in job postings during the same time frame. While housing affordability is the suggested channel that LUR and monetary policy work through, my results do not provide clear evidence of this. The main results highlight the broader implications of LUR on labor markets, suggesting that restrictive LUR contribute to persistent labor shortages and potential inflationary pressures in the U.S.