Here's a little sneak peek into some work I've been finishing up. This graph shows the number of permits issued for single-family homes and multi-unit projects (duplexes on up to high rise condos). The measure is the number of units as a percentage of existing homes. In other words, what is the gross percentage growth in the housing stock, due to single unit and multi-unit building. The black lines are the averages among all large metros. The red lines are the averages among the "Closed Access" cities - New York City, Los Angeles, Boston, San Francisco, San Diego, and San Jose.

I find several interesting items to note here:

1) Of course, the Closed Access cities build single-family homes at much lower rates than anywhere else. Also, there was absolutely no supply response in the Closed Access cities in the single-family market due to the subprime lending boom. The rate of single-family building was lower in 2005 than it had been in any year since 1996. I have heard anecdotal defenses of the housing bust, claiming that even cities like LA had excess supply where single-family homes were being built in the suburbs, where there wasn't really demand for them. That idea is belied by the data.

2) However, as prices increased, there was a tremendous supply response in the Closed Access cities in multi-unit projects. In spite of the horror stories of the local hoops one must jump through to build apartments, the Closed Access cities really are building many more apartments than they had before 2003.

3) Since 2004, in fact, the rate of a multi-unit building in the Closed Access cities has matched the national average. In the end, the regulatory obstacles create higher prices. Potential residents push prices up until it is worth the trouble to build units. The regulatory obstacles now are raising prices rather than pushing down new supply, relative to other cities. This suggests that demand is inelastic. Agglomeration effects, etc. are strong. This is, in fact, bad news. This suggests that the regulatory limits to multi-unit housing are more widespread than just the Closed Access cities. As bad as the regulatory environment is in the Closed Access cities, other cities are not building multi-unit housing at a rate significantly higher than they are.

4) The deep cuts to mortgage lending since 2007 have cut into the single-family building in the Closed Access cities just as much as they have in other cities.  Building in the Closed Access cities has nearly recovered to pre-crisis levels, but that's all multi-unit. In the 1970s and 1980s, it was common for the multi-unit building to be double or triple what it is today. To get anywhere close to that today would require a wholesale regulatory overhaul across the country.

Fortunately, the political center seems to be moving in that direction. We have a long way to go.

I am finishing up a paper with much more detail on housing supply before the crisis, and another with much more detail on the influences on home prices.