Why Have Housing Prices Gone Up?

TLDR

Housing prices have risen steadily since 1950, first driven by higher quality and construction costs (1950‑70) and later by increasing regulatory hurdles to new construction (post‑1970). The study develops a simple regulatory‑approval model to explain the post‑1970 rise in housing prices. The model attributes the price increase to shifting judicial preferences, reduced bribery opportunities, higher incomes, greater amenity demand, and stronger homeowner organization. Preliminary evidence shows that residents’ power to block projects has grown and that cities have shifted from urban growth machines to homeowners’ cooperatives.

Abstract

Since 1950, housing prices have risen regularly by almost two percent per year. Between 1950 and 1970, this increase reflects rising housing quality and construction costs. Since 1970, this increase reflects the increasing difficulty of obtaining regulatory approval for building new homes. In this paper, we present a simple model of regulatory approval that suggests a number of explanations for this change including changing judicial tastes, decreasing ability to bribe regulators, rising incomes and greater tastes for amenities, and improvements in the ability of homeowners to organize and influence local decisions. Our preliminary evidence suggests that there was a significant increase in the ability of local residents to block new projects and a change of cities from urban growth machines to homeowners' cooperatives.