Supply Constraints Do Explain House Price and Quantity Growth Across U.S. Cities

Abstract: In a widely cited working paper, Louie, Mondragon and Wieland (2025) 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, implying that constrained housing supply is relatively unimportant in explaining differences in rising house prices among U.S. cities. We show that their findings do not hold up—our evidence is that supply constraints do explain new housing supply and house prices across U.S. cities, in line with the literature. Inter alia, we model the effect of supply constraints on new housing supply (proxied by permits), exploiting the variation in annual data and controlling for other factors using year and MSA fixed effects.

DOI: https://doi.org/10.24149/wp2635

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