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Why is Manhattan So Expensive? Regulation and the Rise in House Prices

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  • Edward L. Glaeser
  • Joseph Gyourko
  • Raven Saks

Abstract

In Manhattan and elsewhere, housing prices have soared over the 1990s. Rising incomes, lower interest rates, and other factors can explain the demand side of this increase, but some sluggishness on the supply of apartment buildings also is needed to account for the high and rising prices. In a market dominated by high rises, the marginal cost of supplying more space is reflected in the cost of adding an extra floor to any new building. Home building is a highly competitive industry with almost no natural barriers to entry, yet prices in Manhattan currently appear to be more than twice their supply costs. We argue that land use restrictions are the natural explanation of this gap. We also present evidence consistent with our hypothesis that regulation is constraining the supply of housing so that increased demand leads to much higher prices, not many more units, in a number of other high price housing markets across the country.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10124.

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Date of creation: Nov 2003
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Publication status: published as Glaeser, Edward L., Joseph Gyourko, and Raven Saks. "Why is Manhattan So Expensive?: Regulation and the Rise in House Prices." Journal of Law and Economics 48, 2 (2005): 331-370.
Handle: RePEc:nbr:nberwo:10124

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  1. Glaeser, Edward L & Mare, David C, 2001. "Cities and Skills," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 316-42, April.
  2. James M. Poterba, 1983. "Tax Subsidies to Owner-occupied Housing: An Asset Market Approach," Working papers 339, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Hamilton, Bruce W., 1978. "Zoning and the exercise of monopoly power," Journal of Urban Economics, Elsevier, vol. 5(1), pages 116-130, January.
  4. Goodman, John Jr. & Ittner, John B., 1992. "The accuracy of home owners' estimates of house value," Journal of Housing Economics, Elsevier, vol. 2(4), pages 339-357, December.
  5. Katz, Lawrence & Rosen, Kenneth T, 1987. "The Interjurisdictional Effects of Growth Controls on Housing Prices," Journal of Law and Economics, University of Chicago Press, vol. 30(1), pages 149-60, April.
  6. Antonio Ciccone & Robert E. Hall, 1993. "Productivity and the Density of Economic Activity," NBER Working Papers 4313, National Bureau of Economic Research, Inc.
  7. Edward L. Glaeser & Joseph Gyourko, 2002. "The Impact of Zoning on Housing Affordability," Harvard Institute of Economic Research Working Papers 1948, Harvard - Institute of Economic Research.
  8. Kanemoto, Yoshitsugu, 1980. "Theories of urban externalities," MPRA Paper 24614, University Library of Munich, Germany.
  9. Henry O. Pollakowski & Susan M. Wachter, 1990. "The Effects of Land-Use Constraints on Housing Prices," Land Economics, University of Wisconsin Press, vol. 66(3), pages 315-324.
  10. Early, Dirk W. & Olsen, Edgar O., 1998. "Rent control and homelessness," Regional Science and Urban Economics, Elsevier, vol. 28(6), pages 797-816, November.
  11. Benson, Earl D, et al, 1998. "Pricing Residential Amenities: The Value of a View," The Journal of Real Estate Finance and Economics, Springer, vol. 16(1), pages 55-73, January.
  12. Linneman, Peter, 1987. "The effect of rent control on the distribution of income among New York City renters," Journal of Urban Economics, Elsevier, vol. 22(1), pages 14-34, July.
  13. Gyourko, Joseph & Linneman, Peter, 1989. "Equity and efficiency aspects of rent control: An empirical study of New York City," Journal of Urban Economics, Elsevier, vol. 26(1), pages 54-74, July.
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  1. On rent controls
    by René Böheim in Econ Tidbits on 2012-11-13 06:16:00
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