Regulations and Government Policies are the Main Cause of the Explosion in Housing Prices
The numbers
| 1970 | 2024 | |
|---|---|---|
| Median home price | ~$23,400 | ~$420,000 |
| Median household income | ~$8,700 | ~$80,600 |
| Price-to-income ratio | ~2.7x | ~5.2x |
~1,700% nominal price increase vs ~825% income increase. In real terms: +120% home prices, +14% median income. In high-demand metros (San Francisco, New York, London): 10–15x ratios. U.S. Census Bureau, FRED, Harvard JCHS
Why existing homes track new construction costs
If new construction were cheap, buyers would simply build rather than pay a premium for existing stock. Any policy that inflates construction costs directly props up the value of every home already standing. (Glaeser & Gyourko, NBER 2002)
What drove construction costs up
| Driver | Share of total price increase | Source |
|---|---|---|
| Land | ~50% | Davis & Palumbo, Journal of Urban Economics 2008 |
| Labor | ~20% | BLS (tracks general inflation, not excess) |
| Materials | ~10% | Random Lengths, Statista |
| Regulatory/permit costs | ~10% | NAHB 2021 |
Land’s share of total home value rose from ~50% (early 1980s) to over 70% in major metros by the mid-2000s. Permit and compliance costs went from a few hundred dollars per unit in the 1970s to $15,000–$90,000+ today. NAHB estimates regulatory costs now account for 24% of the final price of a new single-family home, up from under 5% in the 1970s.
The root cause
Land and direct regulatory costs together account for ~60% of the total nominal price increase. Both are government policy:
- Zoning: single-family-only zoning covers 75%+ of residential land in most U.S. cities, creating artificial scarcity. (Whittemore, Journal of Planning Literature, 2021)
- Building codes, environmental review, permitting delays: direct cost and time added to every new unit.
The result is a transfer of wealth from the unhoused (younger, lower-income) to existing homeowners (older, higher-income). (Glaeser & Gyourko, NBER 2002; Urban Institute, 2022)