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Foundation for Economic Education
Foundation for Economic EducationSeptember 24, 2026

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Why have home prices soared when construction costs haven’t risen nearly as much?

Comment “Housing” and we’ll send you the full video. Economists Edward Glaeser and Joseph Gyourko uncovered something revealing: between 1980 and 2015, the inflation-adjusted physical cost of building a square foot of housing remained remarkably stable. Yet home prices in many desirable American cities rose dramatically. What explains the gap? Part of the answer lies in restrictions that prevent housing supply from responding to demand. Zoning laws, height limits, parking mandates, lengthy permitting processes, and neighborhood opposition make it increasingly difficult to build where people want to live. When developers cannot add enough homes, rising demand translates into higher prices instead of more construction.
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