I am curious what the actual statistics are? Looking at that figure my guess is that, yes that is a significant correlation, but what are the actual numbers (r-squared and p-value) if you are going to post that plot saying it is a significant correlation. I would also guess you could get a similar correlation with a few other factors as well (employment, incomes, education level, etc.).
A comment on the environmental regulations since I work in that field – yes CA has pretty strict regulations, but some of the examples that were brought up fall under federal laws as well, so apply in any state – wetlands are a good example – some of the most “religous” states would have far more expensive mitigation for wetlands impacts if they want to build because so many areas in them are full of wetlands (i.e. LA, MS, SC).
The coastal sage scrub habitat that is so common here is regulated by CA fish and game, but it also falls under federal jurisdiction because of the Gnatcatcher that lives there, so it is not just CA’s rules – my point being that while CA does have some stricter environmental laws, many of the protected resources (endangered species and certain habitats) also fall under federal laws that would effect building in any state – regulated by USFWS and/or ACOE. Often for wetlands, which I am most familiar with, the mitigation for the state is the same as for federal, so the only difference in cost is paying the permit fee, which for most developments is a very small amount of money relatively speaking – they have to pay to have the permit prepared, but they have to do that in other states as well.
I do always enjoy reading about how there is no land to build on here. I just don’t think that is really that big of an issue except right on the coast (west of the 5) – from my view the only thing that has slowed down the rate of building in San Diego is the lack of buyers, not lack of land. There are graded lots being left empty in areas where all of the environmental permitting is done (SEH for example) – so the only reason they are not building is because no one will by them, when they think they can sell, they will start building again.