Working Paper: NBER ID: w10124
Authors: Edward L. Glaeser; Joseph Gyourko; Raven Saks
Abstract: In Manhattan and elsewhere, housing prices have soared over the 1990s. Rising incomes, lower interest rates, and other factors can explain the demand side of this increase, but some sluggishness on the supply of apartment buildings also is needed to account for the high and rising prices. In a market dominated by high rises, the marginal cost of supplying more space is reflected in the cost of adding an extra floor to any new building. Home building is a highly competitive industry with almost no natural barriers to entry, yet prices in Manhattan currently appear to be more than twice their supply costs. We argue that land use restrictions are the natural explanation of this gap. We also present evidence consistent with our hypothesis that regulation is constraining the supply of housing so that increased demand leads to much higher prices, not many more units, in a number of other high price housing markets across the country.
Keywords: housing prices; regulation; land use restrictions; Manhattan
JEL Codes: R0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| land use restrictions (R52) | gap between housing prices and marginal production costs (R31) |
| land use restrictions (R52) | reduced housing supply (R31) |
| reduced housing supply (R31) | high prices in Manhattan's housing market (R31) |
| regulatory constraints (L51) | high prices in Manhattan's housing market (R31) |
| increased demand due to rising incomes and lower interest rates + regulatory constraints (G21) | high prices in Manhattan's housing market (R31) |
| competitive nature of construction industry (L74) | push prices toward marginal costs (D41) |
| regulatory constraints (L51) | prices more than double the supply costs (Q31) |
| increased supply in other cities (R31) | stable prices (E30) |