Is housing more expensive in Manhattan because land is more valuable there? Edward L. Glaeser, Joseph Gyourko, and Raven Saks argue that housing is more expensive because of regulation.

In twelve out of the twenty-one markets that we examine, on average home costs no more than ten percent more than the costs of the physical structure and the land. However, in Boston, New York, Newport News, Salt Lake City and Washington, D.C., the gap between construction costs and home prices is between ten and thirty-three percent. In Los Angeles, Oakland, San Francisco, and San Jose, the gap is from one-third to one-half of typical house value.

The authors say that land prices cannot explain the high price of apartments relative to the marginal cost of production in Manhattan. They point out that there is the option of making buildings taller. They write

Land shortages well may limit certain types of development in Manhattan, but builders always can add an extra floor if that would be profitable…
We conservatively estimate that market prices in Manhattan are at least double the marginal cost of production on a per square foot basis.

For Discussion. The authors argue that regulation is the most likely explanation for their results. What other explanations come to mind?