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The Impact of Zoning on Housing Affordability

Working paper #395
Edward L. Glaeser and Joseph Gyourko

This paper examines whether there is a housing affordability problem in America by comparing house prices to the costs of new construction. It then proceeds to investigate why prices far exceed construction costs in certain areas. In most of the country, home prices appear to be fairly close to the physical costs of construction. Only in particular areas, especially New York City and California, do housing prices diverge substantially from the costs of new construction. The bulk of the evidence examined indicates that zoning and other land use controls are responsible for prices in high cost areas of the country. This indicates that restrictions on supply and new development, not just high demand for certain regions, are responsible for the housing affordability problems that do exist. The results also suggest that if housing affordability advocates are interested in reducing housing costs, they would do well to start with zoning reform, and not focus as much on public or subsidized construction programs.

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