The Effects of Critical Habitat Designation on Housing Supply: An Analysis of California Housing Construction Activity

Under the Endangered Species Act, the U.S. Fish and Wildlife Service is required to designate critical habitat for listed species. Designation could result in modification to or delay of residential development projects within habitat boundaries, generating concern over potential housing market impacts. This paper draws upon a large dataset of municipal-level (FIPS) building permit issuances and critical habitat designations in California over a 13-year period to identify changes in the spatial and temporal pattern of development activity associated with critical habitat designation. We find that the proposal of critical habitat results in a 20.5% decrease in the annual supply of housing permits in the short-run and a 32.6% decrease in the long-run. Further, the percent of the FIPS area that is designated as critical habitat significantly affects the number of permits issued. We also find that the impact varies across the two periods in which critical habitat is designated and by the number of years relative to when critical habitat was first proposed.