Penn IUR Publications

Document Type

Journal Article

Date of this Version



Copyright The University of Chicago Press. Reprinted from The Journal of Law and Economics, Volume 48, October 2005, pages 331-369.


Economics, Economic Development and Real Estate, Housing and Community Development, Land Use, Infrastructure and Transportation


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.



Date Posted: 06 July 2006

This document has been peer reviewed.