Supply Constraints do not Explain House Price and Quantity Growth Across U.S. Cities

The standard view of housing markets holds that differences in the flexibility of local housing supply—shaped by factors like geography and regulation—explain differences in how house price and quantity growth respond to rising demand across U.S. cities. 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 results when we examine rents, expand the sample to 1980 to 2020, use different elasticity measures, use per capita income or population growth instead of total income growth, and when exploiting a variety of plausibly exogenous variation in local housing demand. Using a general demand-and-supply framework, we show that these results imply that estimated housing supply constraints are unimportant in explaining differences in rising house prices among U.S. cities. Our conclusions challenge the prevailing view of local housing and labor markets and suggest that relaxing regulatory housing supply constraints may not materially affect housing affordability.