Supply constraints and housing prices

Regulatory supply constraints are sometimes blamed for high housing prices in the coastal United States.1 This paper analyzes the effects of land use constraints in a world in which people are mobile, but preferences over different locations are heterogeneous. Loosening regulations within individual regions would have little effect on prices for plausible parame-terizations. For example, if the median American would be induced to move to Manhattan in the long run if the price of apartment space fell by seventy percent, and if the threshold price were distributed normally in the US population, then even if every building in Manhattan were 100 stories tall, prices would fall by less than 15 percent, ignoring amenity loss. Under the same assumptions on demand for land in metropolitan New York, halving land prices would require multiplying developable land supply in existing locations by 15. It is difficult to assess the role of land use constraints empirically because we do not observe the same city at the same time with and without these regulations.2 A believable theoretical model of regulations ’ effects on prices can thus help inform important policy de