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

  • Edward L. Glaeser
  • Joseph Gyourko
  • Raven Saks

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
Date of revision:
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
Note: EFG AP
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  1. Edward L. Glaeser & David C. Mare, 1994. "Cities and Skills," NBER Working Papers 4728, National Bureau of Economic Research, Inc.
  2. Antonio Ciccone & Robert E. Hall, 1995. "Productivity and the density of economic activity," Economics Working Papers 120, Department of Economics and Business, Universitat Pompeu Fabra.
  3. 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.
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  5. Kanemoto, Yoshitsugu, 1980. "Theories of urban externalities," MPRA Paper 24614, University Library of Munich, Germany.
  6. 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.
  7. Edward L. Glaeser & Joseph Gyourko, . "The Impact of Zoning on Housing Affordability," Zell/Lurie Center Working Papers 395, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
  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. 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.
  10. 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.
  11. Early, Dirk W. & Olsen, Edgar O., 1998. "Rent control and homelessness," Regional Science and Urban Economics, Elsevier, vol. 28(6), pages 797-816, November.
  12. repec:cup:cbooks:9780521396455 is not listed on IDEAS
  13. 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.
  14. 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.
  15. Hamilton, Bruce W., 1978. "Zoning and the exercise of monopoly power," Journal of Urban Economics, Elsevier, vol. 5(1), pages 116-130, January.
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