The Housing Price Impact of Covenant Restrictions and Other Subdivision Characteristics

Private land-use restrictions at the subdivision level, commonly called covenant or deed restrictions, have the potential to reduce housing consumption and investment risk and existing empirical evidence has shown a positive marginal housing price for covenant restrictions. However, some commentators have charged that covenant restrictions are full of boilerplate and mostly unenforced, thus any positive marginal price measurement captures other unobserved aspects of the subdivision. Indeed newly published estimates report zero or negative marginal price for deed-restricted subdivisions (DRS). This paper reviews these claims using a hedonic model of housing and a unique dataset that includes covenant restrictions, by-laws, and club goods. Results show a positive marginal price of deed restrictions even when controlling for several subdivision characteristics; however, the marginal price of restrictions falls to zero if a covenant is not updated after 25 years.