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Why Is Manhattan So Expensive? Regulation and the Rise in Housing Prices

  • Glaeser, Edward L
  • Gyourko, Joseph
  • Saks, Raven

In Manhattan, housing prices have soared since the 1990s. Although rising incomes, lower interest rates, and other factors can explain the demand side of this increase, some sluggishness in the supply of apartment buildings is needed to account for high and rising prices. In a market dominated by high-rises, the marginal cost of supplying more housing is 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, and yet prices in Manhattan currently appear to be more than twice their supply costs. We argue that land use restrictions are the natural explanation for this gap. We also present evidence that regulation is constraining the supply of housing in a number of other housing markets across the country. In these areas, increases in demand have led not to more housing units but to higher prices.

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File URL: http://dx.doi.org/10.1086/429979
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Article provided by University of Chicago Press in its journal Journal of Law and Economics.

Volume (Year): 48 (2005)
Issue (Month): 2 (October)
Pages: 331-69

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Handle: RePEc:ucp:jlawec:y:2005:v:48:i:2:p:331-69
Contact details of provider: Web page: http://www.journals.uchicago.edu/JLE/

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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. Benson, Earl D & Hansen, Julia L. & Schwartz Jr., Arthur & Smersh, Greg T., 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.
  3. Edward L. Glaeser & Joseph Gyourko, 2001. "Urban Decline and Durable Housing," Harvard Institute of Economic Research Working Papers 1931, Harvard - Institute of Economic Research.
  4. Gyourko, Joseph & Saiz, Albert, 2004. "Reinvestment in the housing stock: the role of construction costs and the supply side," Journal of Urban Economics, Elsevier, vol. 55(2), pages 238-256, March.
  5. Halvorsen, Robert & Palmquist, Raymond, 1980. "The Interpretation of Dummy Variables in Semilogarithmic Equations," American Economic Review, American Economic Association, vol. 70(3), pages 474-75, June.
  6. Hamilton, Bruce W., 1978. "Zoning and the exercise of monopoly power," Journal of Urban Economics, Elsevier, vol. 5(1), pages 116-130, January.
  7. 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.
  8. 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.
  9. Somerville, C Tsuriel, 1999. "Residential Construction Costs and the Supply of New Housing: Endogeneity and Bias in Construction Cost Indexes," The Journal of Real Estate Finance and Economics, Springer, vol. 18(1), pages 43-62, January.
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