Supply Constraints Do Not Explain House Price and Quantity Growth Across U.S. Cities

Schuyler Louie, John Mondragon and Johannes Wieland

No 2025-06, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: The standard view of housing markets holds that the flexibility of local housing supply—shaped by factors like geography and regulation—strongly affects the response of house prices, house quantities and population to rising housing demand. However, from 2000 to 2020, we find that higher income growth predicts the same growth in house prices, housing quantity, and population regardless of a city’s estimated housing supply elasticity. We find the same pattern when we expand the sample to 1980 to 2020, use different elasticity measures, and when we instrument for local housing demand. Using a general demand-and-supply framework, we show that our findings imply that constrained housing supply is relatively unimportant in explaining differences in rising house prices among U.S. cities. These results challenge the prevailing view of local housing and labor markets and suggest that easing housing supply constraints may not yield the anticipated improvements in housing affordability.

Keywords: house prices; housing supply; affordability; regulation; zoning; land use (search for similar items in EconPapers)
JEL-codes: E22 J61 R21 R31 R52 (search for similar items in EconPapers)
Pages: 64
Date: 2025-03-21
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DOI: 10.24148/wp2025-06

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