What’s Behind the Boom examines some of the longer-term forces that are reshaping the housing industry:
America still has lots of wide-open spaces, but many of them aren’t where people want to live. And builders are finding it more difficult to get permits to put up new houses in many of the more economically vibrant metropolitan areas, particularly along the East and West coasts.
‘The housing supply has been constrained by government regulation as opposed to fundamental geographic limitations,’ concludes a paper released in December 2004 by Edward L. Glaeser, an economics professor at Harvard University, and two colleagues.
Homeowners share the blame. Prof. Glaeser’s paper says they have grown savvier about organizing themselves to block proposals that would bring new and more densely packed housing to their neighborhoods — something that they fear could reduce the value of existing homes.
In the more crowded markets, home values no longer have much to do with the cost of building a home. In San Francisco, the paper estimates, the structure itself typically accounts for no more than 30% of a home’s value; the rest of the value reflects the costs of land and obtaining regulatory approvals to build. That’s why some people pay as much as $1 million for an old home, immediately tear it down and build a new one.