Housing is one of the most important elements in household portfolios and budgets. Over the past 30 years, the dispersion in prices across American markets has increased substantially. In much of the country, new housing units still are abundant and housing prices remain low. In contrast, new construction has plummeted and housing prices have soared in a small, but increasing number of places. These changes do not appear to be the result of a declining availability of land, but rather are the result of a changing regulatory regime that has made large-scale development increasingly difficult in expensive regions of the country. Changes in housing supply regulations may be the most important transformation that has happened in the American housing market since the development of the automobile, but they are both under-studied and under-debated.

The positive research agenda going forward should be to understand why these changes have occurred and what relationship exists with other major trends in the American society. The normative policy agenda should be to better understand the costs and benefits of limits on new construction. The costs appear to include higher prices and a misallocation of labor, while the benefits include internalization of construction-related externalities.

Given the implications of this regulatory shift, the economics profession could make a major contribution by analyzing the welfare effects of regulation on the rise in housing prices.