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

Edward Glaeser, Joseph Gyourko and Raven Saks

No 10124, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: R0 (search for similar items in EconPapers)
Date: 2003-11
New Economics Papers: this item is included in nep-com, nep-geo and nep-ure
Note: EFG AP
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Citations: View citations in EconPapers (25)

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.

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