Economists Put a Price on Obtaining a Building Permit in LA. It’s Not Small.
If you want to build something in Los Angeles County, waiting for a permit takes time — and now there’s a study estimating the cost of that wait. Researchers find that vacant land with an approved building permit sells for roughly 50% more than comparable unpermitted land, and argue that permitting costs may account for about one-third of the gap between what homes sell for and what they cost to build.
In “How Costly Is Permitting in Housing Development?”, Princeton economist Evan Soltas and MIT economist Jonathan Gruber analyzed a Los Angeles County submarket in which landowners sell properties bundled with fully approved, ready-to-issue building permits, treating the price difference between permitted and unpermitted land as a revealed measure of what developers willingly pay to skip the process.
Key Takeaways:
- A 50% land price premium. Vacant permitted land in Los Angeles County sells for about 50% more than comparable unpermitted land, implying a median permit value of about $48 per square foot of land
- Faster completion. Land sold with permits already approved is 8 to 12 percentage points more likely to be completed within four years of purchase.
- One-third of the cost gap. Permitting is estimated to account for about 32% of the countywide gap between home prices and construction costs, a share that holds roughly steady across neighborhoods.
The researchers analyzed approximately 95,700 property listings from the Los Angeles County Multiple Listing Service between 1995 and 2024, focusing on roughly 5,000 properties listed both with and without approved permits at different points in time. Comparing the same property before and after permit approval removes the influence of fixed property characteristics that could skew results. They used OpenAI’s GPT-4.1 to classify permit status from listing descriptions and validated it against human reviewers, who agreed with the model more than 92% of the time for fully approved properties. Two factors limit generalizability: the preapproved submarket skews toward denser, higher-income neighborhoods, and about 80% of preapproved sales are driven by specialist investors rather than typical landowners.
Here is what they found:
The approval premium. Vacant permitted land commands roughly a 50% premium across multiple specifications, equivalent to a median of about $770,000 per parcel. The authors break this into time and resource costs, allocating roughly half to wait-related costs and half to procedural resource costs, though they note that the split is estimated imprecisely and that the entire premium could plausibly reflect time costs alone. Because buyers lock into a specific project design at purchase and forgo the flexibility to change course, the authors say the premium likely understates true permitting costs.
Construction timelines. Preapproved projects were 8 to 12 percentage points more likely to be completed within four years of site acquisition than comparable unpermitted ones, and when they did complete, they tended to do so one to two years sooner. Buyers of pre-approved land can break ground immediately after purchase rather than waiting through the permitting process. The authors describe this as a transfer of waiting time from developer to landowner, roughly one-to-one. Total time from raw land to completed building does not shrink, but the portion falling on the developer does.
Share of the housing cost gap. Using construction cost estimates from R.S. Means, a construction industry reference that publishes per-square-foot building cost data, the authors estimate that the median Los Angeles County home in 2024 sold for roughly 120% above what it would cost to physically build. They put permitting’s share of that gap at about 32% countywide, a figure that holds roughly across the county, though in the most expensive neighborhoods, the dollar cost of permitting is substantially higher.
The authors point to two policy areas their findings most directly address: cutting approval timelines and reducing procedural complexity in regulatory filings and multi-agency reviews. While many factors drive LA’s housing shortage, this analysis suggests that reducing permitting time and complexity can help lower costs.
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