The American Dream’s geographic escape hatch is slamming shut. New research reveals that once-affordable sunbelt cities like Phoenix, Dallas, and Miami now mirror the restrictive housing markets of San Francisco and New York. The implications for economic dynamism are profound and worrisome.
For decades, America’s housing market operated on a simple safety valve principle: When coastal cities became unaffordable, ambitious workers could migrate to fast-growing sunbelt metros where developers built homes quickly and cheaply.
That mechanism is breaking down, according to the new NBER working paper “America’s Housing Supply Problem: The Closing of the Suburban Frontier?” by economists Edward L. Glaeser (Harvard University) and Joseph Gyourko (University of Pennsylvania).
Here’s the abstract:
Housing prices across much of America have hit historic highs, while less housing is being built. If the U.S. housing stock had expanded at the same rate from 2000-2020 as it did from 1980-2000, there would be 15 million more housing units. This paper analyzes the decline of America’s new housing supply, focusing on large sunbelt markets such as Atlanta, Dallas, Miami and Phoenix that were once building superstars. New housing growth rates have decreased and converged across these and many other metros, and prices have risen most where new supply has fallen the most. A model illustrates that structural estimation of long-term supply elasticity is difficult because variables that make places more attractive are likely to change neighborhood composition, which itself is likely to influence permitting. Our framework also suggests that as barriers to building become more important and heterogeneous across place, the positive connection between building and home prices and the negative connection between building and density will both attenuate. We document both of these trends throughout America’s housing markets. In the sunbelt, these changes manifest as substantially less building in lower density census tracts with higher home prices. America’s suburban frontier appears to be closing.
One example of the phenomenon that the paper investigates: In Miami, the number of new homes built in low-density, high-price areas has collapsed by 92 percent since the 1970s. Once a hotspot for suburban growth, these areas now see little new construction even when prices soar. Developers now build far fewer homes even when prices signal strong demand. Phoenix and Dallas show similar deterioration. Cities that once responded to housing shortages by rapidly increasing construction now build only a fraction of what market conditions would historically have triggered.
The culprit isn’t land scarcity. These cities remain surrounded by vast open spaces. Instead, existing homeowners have become adept at using zoning laws and permitting processes to block new construction, protecting their property values while locking out newcomers.
From the paper:
To us, this suggests that American housing markets increasingly follow the model put forth by Mancur Olsen. In his view, insiders increasingly use regulations to protect their own rents and keep outsiders out. If existing homeowners in high price areas have become better at controlling land use regulations and stopping new construction, then we should expect to see a decreasing link between high prices and new construction, which is exactly what the data shows.
The authors estimate America is missing 15 million homes that would have existed under historical building patterns. That’s not just a housing shortage, it’s a productivity catastrophe representing millions of people unable to access economic opportunity. As I write in my 2023 book, The Conservative Futurist: How To Create the Sci-Fi World We Were Promised:
There’s a plausible case that our inability and unwillingness to build more homes where people want to live drives myriad challenges, including slow economic growth, weak productivity growth, economic inequality, falling fertility, and more. Let’s just focus on one of those problems: productivity growth. America’s cities are the economy’s high-productivity engines. They’re also where wages are highest. But zoning rules and other land-use regulations have impeded homebuilding for decades, making housing in many such cities unnecessarily expensive and disrupting the historical economic process where people raise their living standards by moving to where the good jobs are. They also become more productive as workers. America’s most productive cities should be a lot bigger.
The research here demolishes the notion that this housing supply crisis stems from the aftermath of the Global Financial Crisis. This unwelcome convergence began in the 1980s and 1990s, suggesting decades of accumulated dysfunction. Coastal housing restrictions were once an expensive quirk. Now they’ve gone viral, spreading to previously responsive markets nationwide.
The stakes couldn’t be higher: Either America rediscovers how to build, or it accepts managed economic decline disguised as neighborhood preservation.