Susan Pendergrass speaks with Edward L.Glaeser, professor of economics at Harvard University and nonresident senior fellow at the American Enterprise Institute, about America’s housing crisis. They discuss why affordability is a supply problem, how zoning and land-use rules drive up costs, the decline of suburban building, and what states like Missouri can do to encourage growth and restore opportunity.
Timestamps
00:00 The Housing Crisis: Understanding the Supply Problem
02:19 The Role of Land Use Regulations
05:15 The Impact of Local Zoning on Housing Development
08:11 The Shift in Public Perception and NIMBYism
10:56 The Decline of Mobility and Its Consequences
14:03 Future of Housing: Urban vs. Suburban Development
16:25 Policy Solutions for Housing Affordability
Transcript
Susan Pendergrass (00:00)
Always a pleasure to talk to Dr. Edward Glaeser of Harvard. And you have a new paper out that looks at how housing has changed.
I want to talk about that. I was just saying before we started recording that I had Brian Kaplan on and we talked about how it’s a supply problem, not a demand problem, but explain to me why, first of all, what’s going on now with housing in the United States and why places like Los Angeles continue to just not have enough housing so that people are living on the streets?
Edward Glaeser (00:32)
Okay, so big question. Of course, homelessness is partially about housing supply. It’s also about mental illness. It’s about fentanyl. It’s about other things as well. But there’s no question that the rent is too darn high, as the party bearing that name says, and that housing prices in America have gotten to be astonishingly high, not just in coastal enclaves like—
Susan Pendergrass (00:33)
Big question.
Edward Glaeser (00:56)
—Los Angeles, but also in places like Atlanta, like Phoenix, that used to be bastions of affordability for ordinary Americans, largely because they built enough. Those places are increasingly also turning into places where a great house in a great neighborhood just seems out of reach for middle-class Americans. Now, you can build further out, and they still are, but they’re building much less in the sort of moderate density,
Susan Pendergrass (01:14)
But why? Can’t they just keep building?
Edward Glaeser (01:22)
—medium-price areas that used to build a ton of housing in the 70s and 80s. They’re just not doing that anymore. And I want to just, you know, let’s get the economics of supply and demand across to the audience, right? Some of your audience may have taken Economics 101, in which case they may remember those graphs that show a supply curve and a demand curve. But basically all you need to remember is that when prices are high and the quantity of something is high, then it’s likely to be a demand problem.
If the price of something is way up and the quantity of it is way down, that’s a supply problem. Because if it were all about demand, the quantity should be up as well. That’s how we fundamentally know this is a supply problem, not a demand problem.
When you look at Atlanta, Phoenix, and Dallas, you see this change: they used to build like crazy, and now they don’t. At the national level, if we built between 2000 and 2020 at the same rate we did between 1980 and 2000, we’d have 15 million more homes. Housing would be far more affordable.
Susan Pendergrass (02:46)
Yes, so then why aren’t construction firms building the houses? I assume the profit margins are similar. Why not or more? What’s stopping them?
Edward Glaeser (02:56)
I have to take you back 20 years to my first work on this. We think land-use regulation is the great cause of how we’ve produced scarcity in a land of natural abundance.
We know this across metropolitan areas: those more heavily zoned have higher prices and less housing. Within metros, towns with larger minimum lot sizes get less building. That’s obvious: if you require two acres per home, you’ll get fewer homes.
The most economic way we know this is by comparing prices to marginal cost. If markets are relatively unfettered, consumer prices equal firms’ marginal costs. That’s Econ 101. Housing isn’t monopolized—there are thousands of developers. So prices should match costs.
But in New York City, for example, adding a condo unit just means adding a story. More than 20 years ago, Joe Gyourko, Raven Saks, and I found that construction costs were about half of condo prices. That implied a big barrier—what we called the “zoning tax.”
In suburban areas, we measured land value by comparing one-acre vs. two-acre properties. Coastal metros showed big gaps between construction costs and home prices. Again, zoning and land-use rules were to blame.
In pricier parts of Atlanta and Phoenix—Buckhead, Scottsdale—they’ve basically gone “full Los Angeles,” making construction very difficult.
Susan Pendergrass (06:14)
Okay.
Edward Glaeser (06:28)
Costs themselves also rose. Between 1900 and 1940, building costs were flat. Between 1940 and 1970, they dropped—thanks to master builders like William Levitt applying mass production. But after 1970, costs rose.
Why? Because zoning meant projects got smaller: 3,000-unit developments shrank to 30 units or 3 units. Builders got smaller too. In most industries, employees work in large establishments. In residential construction, most work in firms with fewer than 10 employees. An 8-person firm doesn’t have an R&D department.
So construction lost the innovation seen in other industries.
Susan Pendergrass (07:15)
Right.
Edward Glaeser (07:17)
And since 1970, patenting in construction has collapsed while patenting in manufacturing skyrocketed. Innovation disappeared, leaving mom-and-pop builders stuck with outdated methods.
Susan Pendergrass (07:44)
People say it’s supply chains or young people not going into the trades that makes housing expensive. But it doesn’t check out, given how expensive homes are. Out here in exurbs, big developments keep going up—but once people buy, they often oppose further building. They say, “I came here for rural space. Don’t let more people in.” Does that happen in Phoenix and Atlanta?
Edward Glaeser (08:29)
That happens everywhere. Once people have what they want, new building rarely benefits them. Change is scary, so they resist—even if development wouldn’t really harm them.
It’s tragic. America was supposed to be a land where outsiders could come find opportunity. Instead, we’ve become a nation of insiders pulling up the drawbridge. Mancur Olson’s Rise and Decline of Nations predicted this: collusive groups protect their own interests at the expense of others. Forty years later, it feels right.
Susan Pendergrass (10:13)
I saw an article about how mobility is way down—people aren’t moving within counties, states, or across states. Couples with kids used to move up from starter homes. Now they’re stuck because they can’t afford the next step.
Edward Glaeser (10:50)
Exactly. This isn’t a three-year trend—it’s a 30-year trend. It’s not about interest rates or supply chains. Productivity in construction has stagnated.
Economists talk about Baumol’s disease: stagnant industries see rising costs because labor gets bid up elsewhere. But most industries innovate. Construction hasn’t. We still build homes the same way we did decades ago.
Susan Pendergrass (11:59)
If anything, we’ve made it harder—with codes, inspections, permits. It’s so cumbersome, people avoid it.
Edward Glaeser (12:01)
Absolutely. Local zoning and federal rules also block modular, mass-produced housing. Japan does it with just nine zoning codes nationwide, making uniform mass production possible. Scandinavia too. We could have attractive, customizable mass-produced homes here.
Susan Pendergrass (13:17)
So where is this headed? Are suburbs in decline? Will people return to cities? Or just stay stuck?
Edward Glaeser (13:38)
Without policy change, there will be pain. Some urban cores are seeing more building, since cities often have groups that want development—employers, unions, banks. Suburbs are harder; homeowners dominate and resist.
Real change likely requires state governments. Asking suburbs to change on their own is futile. States can limit zoning abuse—some already do. At the federal level, modest steps like the Build More Housing Near Transit Act could help.
Susan Pendergrass (17:35)
In Missouri, we tried tax credits for low-income housing, but developers traded them without building. It seems more effective to just let middle- and upper-income housing get built—then people naturally move up and free up more affordable homes.
Edward Glaeser (18:45)
I strongly agree. Poor people typically drive used cars—they should also live in “used” houses. Filtering is natural. Creating two classes of housing—affordable vs. everything else—is unhealthy. Real affordability means anyone can rent or buy at a reasonable price, not just lottery winners of subsidies.
Susan Pendergrass (20:07)
Yes. Some places have nothing under a million dollars. That forces sprawl, but even sprawl is slowing.
Edward Glaeser (20:42)
And ironically, stopping suburban building hurts the environment. Preventing infill just pushes growth further out, creating more driving and emissions. California has the mildest climate, making it the lowest-carbon region—but decades of policy stopped construction there.
Susan Pendergrass (21:28)
It’s counterintuitive, but your work makes sense of it. Thank you for making it clear.
Edward Glaeser (21:58)
Thank you—and I’m always grateful to join your podcast and work with the Show-Me Institute.
Susan Pendergrass (22:01)
Wonderful. Thank you so much for joining us.
Edward Glaeser (22:06)
Thank you.
Produced by Show-Me Opportunity
