When I started to write this article, I was ready to blame Paul Krugman for not discussing this far more important economic restriction. Then I did some research. Research is most useful when it changes your mind, and my research did change my mind. It turns out that Krugman has been very good at laying out the large costs to the economy of making housing artificially expensive. Caplan, in Build, Baby, Build, quotes the following from Krugman:
High housing prices in slow-growing states also owe a lot to policies that sharply limit construction. Limits on building height in the cities, zoning that blocks denser development in the suburbs, and other policies constrict housing on both coasts.
Krugman also notes, “Meanwhile, looser regulation in the South has kept the supply of housing elastic and the cost of living low.”
Many economists, to their credit, criticize these restrictions on building. But they are, on average, less outspoken against these incredibly destructive restrictions than they are against the less damaging restrictions on international trade.
The above is from my most-recent Hoover article, “Housing Restrictions Hit Harder Than Tariffs,” Defining Ideas, June 5, 2025.
Read the whole thing.
READER COMMENTS
steve
Jun 9 2025 at 3:18pm
I am encouraged that this is being recognized more widely on the left now and am pretty optimistic that it will have some results.
Steve
David Henderson
Jun 9 2025 at 3:59pm
Ditto. I would put a 0.3 or more probability on its having substantial results.
Kevin Erdmann
Jun 9 2025 at 9:29pm
And, as bad as local supply constraints are, I would argue that far worse damage was done to American housing with the 2008 crackdown on mortgage access. A handful of cities had regressively high housing costs because of local restrictions. Most cities had the same restrictions on apartments, but they had a band-aid on that problem for decades because families could build entry-level single-family homes in the suburbs. The mortgage crackdown ripped that bandaid off, and in the 17 years since, construction of entry-level single-family homes has dropped by something like 15 million units. All those cities now have regressive rent inflation like the handful of cities before 2008 did.
Since overregulated mortgages spread the problem nationwide, and removed regional displacement as a last-ditch way to avoid rising costs, the scale of the damage of that regulation has been much higher than the scale of the damage from local land use regulations (though, of course, local land use regulations prevented apartments from filling the gap.)
steve
Jun 10 2025 at 11:02am
Something is going on in the market as we have hit record numbers of apartment units being built over the last 3 years. My impression has always been (maybe its wrong) that NIMBYs have been most opposed to multi-family units.
https://www.newsnationnow.com/business/apartment-construction-hits-record/
Steve
Kevin Erdmann
Jun 10 2025 at 1:33pm
Apartment construction has been higher than recent peaks, but it was much higher in the mid-20th century. To me, it shows how clamped down cities are against apartments that the mortgage crackdown dropped single-family entry level new home construction by more than a half million units a year, driving excess rent inflation to unprecedented highs, and there hasn’t been much of an increase in apartment construction anywhere except for a few cities like Austin.
its pretty crazy that the obstructions to it are locally enforced, yet they are universal enough to effectively create a nearly vertical national supply curve.