Why is Manhattan So Expensive? Regulation and the Rise in House Prices
Edward L. Glaeser
Harvard University - John F. Kennedy School of Government, Department of Economics; Brookings Institution; National Bureau of Economic Research (NBER)
University of Pennsylvania - Real Estate Department; National Bureau of Economic Research (NBER)
Raven E. Saks
U.S. Federal Reserve - Division of Research and Statistics
Harvard Institute of Economic Research Discussion Paper No. 2020
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.
Number of Pages in PDF File: 54
Date posted: November 18, 2003
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