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This paper studies how the costs and time lags in obtaining construction permits affect the response of aggregate consumption, employment in construction and house prices to interest rate shocks. First, I document heterogeneity in those costs among OECD economies with similar levels of mortgage development. Second, I use a general equilibrium model to derive sign restrictions to identify interest rate shocks. Third, I estimate vector autoregressions and identify exogenous interest rate shocks using the theory $ consistent sign restrictions. Then, I compare the effects of the shocks in a sample of countries which are heterogeneous in the costs of obtaining the permits. The results show that reductions in interest rates stimulate the economy less in countries with higher costs of obtaining the construction permits. Moreover, the reaction of the economy to interest rate changes is more delayed the longer the time needed to obtain the permits. I discuss the implications of these results for policymakers.