America’s Housing Supply Crisis: Is the Suburban Frontier Closing?

The American housing market is facing a persistent shortage of inventory. Home prices have reached historic highs, and affordability has declined. Normally, in response to higher prices, housing supply would increase. However, new home construction has not kept pace with population growth and household formation, especially following the surge of demand in the wake of the pandemic.

Recent research has claimed that the relationship between prices and supply has become diluted over time because of regulatory barriers and political dynamics. A working paper, “America’s Housing Supply Problem: the Closing of the Suburban Frontier?” by economist Edward Glaser and Joseph Gyourko, dives into why the supply of new housing has shifted lower, especially in the sunbelt regions like Dallas, Atlanta, and Phoenix.

This research shows that the once-strong link between increasing home prices and new home constructions has weakened or even reversed in many metro areas. The authors analyzed Census tract data from the 1970s to the 2010 to track how construction has responded to price changes over time. Housing markets that used to expand rapidly in response to higher prices are now largely unresponsive.

The authors use prices and density to explore where and why new housing is built. The results show that housing supply growth has slowed significantly in low-density areas, particularly in the areas with higher home prices, where much of the housing expansion would traditionally have been expected. This shift reflects the growing impact of regulatory barriers, as suburban and low-density areas now face stricter zoning, and longer permitting processes. These factors make building more homes more difficult and less responsive to demands or market signals.

Land use regulations, zoning restrictions and permitting processes have become more restrictive since the 2000s. These constraints increase the cost and difficulty of building new homes, even as home prices increase. NAHB research shows that regulations now account for nearly $94,000 of the average new home price.

Local socioeconomic dynamics also factor into housing inventory as NIMBYism has hampered supply. As neighborhoods become more affluent, wealthier or, in some cases, higher-educated residents are more likely to oppose new development through changing the permit environment or increasing zoning restrictions.

NAHB Principal Economist of Housing Policy Research Na Zhao delves further into the research in this Eye on Housing post.