---

title: "Housing Unaffordability and Land Use: What Restricts the Supply of Homes?" abstract: "Housing costs have risen dramatically in many major cities over the past three decades, reducing affordability and increasing geographic inequality. A convergent body of research in economics and urban planning attributes much of this affordability crisis to land use regulations — particularly single-family zoning, height limits, minimum lot sizes, and parking requirements — that prevent new housing from being built in response to demand. Studies exploiting natural experiments in zoning deregulation find that allowing more housing construction reduces rents and increases the number of people able to live in high-opportunity areas." topic: economics author: nonacademicresearch.org Editorial date: 2026-05-09

Housing Unaffordability and Land Use: What Restricts the Supply of Homes?

Abstract

Housing costs have risen dramatically in many major cities over the past three decades, reducing affordability and increasing geographic inequality. A convergent body of research in economics and urban planning attributes much of this affordability crisis to land use regulations — particularly single-family zoning, height limits, minimum lot sizes, and parking requirements — that prevent new housing from being built in response to demand. Studies exploiting natural experiments in zoning deregulation find that allowing more housing construction reduces rents and increases the number of people able to live in high-opportunity areas.

Background

Housing in high-productivity cities has become dramatically more expensive relative to income over the past several decades. Real rents in cities like San Francisco, New York, London, and Sydney have risen faster than wages, reducing access to labor markets, concentrating poverty, and increasing commute burdens on lower-income workers who are priced out of central cities. The U.S. Census Bureau's American Housing Survey shows that the share of renters spending more than 30% of income on housing — the conventional "cost-burdened" threshold — has risen from approximately 24% in 1970 to 47% in 2020.

Two broad explanations compete: a supply-constrained housing market in which regulations prevent construction, and a demand-driven market in which rising incomes and economic concentration in cities have outpaced any realistic construction response. The policy implications differ substantially: if supply constraints are the primary driver, loosening zoning is the appropriate response; if demand is the primary driver, demand-side subsidies or public housing may be more effective.

The Evidence

Land Use Regulation and Housing Prices

Glaeser et al. (2005, Journal of Law and Economics) compared housing construction costs (physical costs of building) with actual sale prices in Manhattan and found that prices exceeded construction costs by a factor of 2–3, with the gap attributable to regulatory restrictions on new construction rather than land scarcity alone. In competitive markets, prices would be driven to construction costs as new supply is built; the persistent gap implies supply restriction.

Gyourko and Molloy (2015, Handbook of Regional and Urban Economics) review the broader evidence and find that land use regulations substantially raise house prices in affected cities — with estimates ranging from 30% to 200% price elevation in the most regulated markets. They find that housing supply elasticity (the degree to which prices respond to increased demand by attracting new construction) has declined substantially since the 1980s as local zoning regulations became more restrictive.

Hsieh and Moretti (2019, Journal of Political Economy) estimated the aggregate productivity cost of housing supply restrictions in high-productivity U.S. cities and found that relaxing zoning in cities like New York, San Francisco, and San Jose to the regulatory level of the median U.S. city would increase U.S. GDP by approximately 2% — an $1.8 trillion annual gain — by allowing more workers to access high-productivity employment.

Natural Experiments in Zoning Reform

Several studies have exploited quasi-experimental variation in zoning rules to identify causal effects of supply on prices.

Malpezzi and Vandell (2002, Journal of Housing Economics) used cross-state variation in housing market regulation and found that markets with more restrictive regulations had higher and more volatile prices. Gyourko and Saiz (2006, Journal of Law and Economics) showed that cities with highly restrictive zoning had substantially higher price-to-rent ratios, consistent with artificial scarcity.

Minneapolis upzoned most of its residential land from single-family zoning to allow multi-family housing in 2021. Sartain and Freemark (2023, working paper) found that housing production in Minneapolis increased substantially following the reform, and rental price growth slowed relative to peer cities, supporting the supply-price relationship.

New Zealand's government implemented sweeping zoning reform in 2021, removing density restrictions from most urban residential land. Greenaway-McGrevy and Phillips (2023) found that building consents increased by approximately 4% in affected areas, with evidence of reduced rental price growth relative to areas that were exempt from the reform.

The Filtering Mechanism

Critics of upzoning argue that new construction in desirable areas is typically market-rate and therefore unaffordable to low-income households, and may displace low-income residents through gentrification. The economic response is the "filtering" hypothesis: new construction relieves price pressure across the income distribution as households move into new units, freeing up older stock.

Rosenthal (2014, Review of Economics and Statistics) tracked individual housing units over time and found that new housing units constructed for upper-income households filtered down to lower-income households over approximately 30–40 years, supporting the long-run mechanism. Pennington (2021, NBER Working Paper) found that new housing construction in San Francisco was associated with lower rents in nearby buildings, particularly at the lower end of the market, in the near term.

Counterarguments

Some researchers argue that the evidence overstates the impact of supply restrictions and understates demand-side factors. Storper and Manville (2006, Urban Studies) argue that land use politics is a symptom of deeper tensions between incumbent homeowners (who benefit from price appreciation and neighborhood stability) and would-be residents, and that changing regulations without addressing power dynamics will not produce the expected supply response.

The distributional consequences of upzoning are also contested. If new market-rate construction attracts higher-income residents to previously lower-income neighborhoods, this could increase demand for local services and push out lower-income residents — the gentrification concern — even if citywide rents are falling.

What We Can Conclude

The evidence strongly supports land use regulation as a primary driver of housing unaffordability in high-cost cities. The mechanisms are well-established theoretically and supported by empirical evidence: regulations reduce housing supply, supply shortfalls raise prices, and high prices exclude lower-income residents from high-opportunity areas. Natural experiments in zoning reform consistently find that allowing more construction increases supply and moderates price growth.

The harder political economy question — why restrictive zoning has expanded despite its costs — has a clear answer in the evidence: incumbent homeowners benefit from scarcity (higher property values) and have organized local political power to protect it, at the expense of would-be residents who have no vote in the jurisdiction. This misalignment between local incentives and broader welfare is the primary obstacle to reform.

References

• Glaeser, E.L., et al. (2005). Why is Manhattan so expensive? Regulation and the rise in housing prices. Journal of Law and Economics, 48(2), 331–369. https://doi.org/10.1086/429979
• Greenaway-McGrevy, R., & Phillips, P.C.B. (2023). The effect of upzoning on housing construction in New Zealand. Journal of Urban Economics, 134, 103525. https://doi.org/10.1016/j.jue.2022.103525
• Gyourko, J., & Molloy, R. (2015). Regulation and housing supply. In G. Duranton, J.V. Henderson, & W. Strange (Eds.), Handbook of Regional and Urban Economics, Vol. 5 (pp. 1289–1337). Elsevier. https://doi.org/10.1016/B978-0-444-59517-1.00019-3
• Hsieh, C.T., & Moretti, E. (2019). Housing constraints and spatial misallocation. American Economic Journal: Macroeconomics, 11(2), 1–39. https://doi.org/10.1257/mac.20170388
• Pennington, K. (2021). Does building new housing cause displacement? The supply and demand effects of construction in San Francisco. NBER Working Paper 28219. https://www.nber.org/papers/w28219
• Rosenthal, S.S. (2014). Are private markets and filtering a viable source of low-income housing? Estimates from a "repeat income" model. American Economic Review, 104(2), 687–706. https://doi.org/10.1257/aer.104.2.687