Land Use Restrictiveness and Mortgage Access: How Regulatory Environments Condition Racial and Income Disparities in Loan Approvals and Pricing

Source abstract

Problem, research strategy, and findings Exclusionary zoning is widely understood to limit affordable housing supply and reinforce racial and income segregation in the United States. Despite this, little is known about how restrictive land use regimes shape mortgage lending outcomes, which constitute a key mechanism through which racial and income sorting occurs. In this study I linked national mortgage application data from the Home Mortgage Disclosure Act to municipal-level measures of land use restrictiveness from the Wharton Residential Land Use Regulation Index. I used logistic and ordinary least squares (OLS) regression models to examine whether approval outcomes and interest rate spreads, respectively, vary across restrictive jurisdictions by applicant income and race. The results show that higher-income applicants are generally more likely to be approved and have lower rate spreads, but these advantages diminish as land use restrictiveness increases, complicating the view of exclusionary zoning as primarily an income filter. By contrast, the disadvantage of Black applicants relative to White applicants narrows in the most restrictive cities, suggesting that although Black applicants remain less likely than White applicants to be approved overall, they fare somewhat better in highly regulated jurisdictions than elsewhere.Takeaway for practice Mortgage approval and pricing patterns vary depending on land use restrictiveness. In the most restrictive jurisdictions, higher incomes do not translate into approval or pricing advantages, whereas Black applicants’ relative loan approval disadvantage relative to White applicants is reduced. Planners should recognize that zoning’s interaction with mortgage credit is complex and heterogeneous, and reforms must consider how restrictive regimes condition—not just block—access to credit across different borrower groups.