(Why) Are Housing Costs Rising?

Abstract

Housing costs, relative to household incomes, have grown by 22 percent between 1980 and 2017. While the standard view among economists is that these costs reflect spatial differences in housing and zoning regulation, others have more recently argued that they reflect increasing labor costs. This paper shows that labor costs cannot explain the rise in housing costs. In fact, housing costs relative to income have grown more in larger counties where labor costs have decreased. Moreover, the areas with the greatest increases in housing costs relative to income are also the areas with the most restrictive housing regulation.