Abstract: Traditionally, metropolitan areas with strong economic prospects attracted immigrants and grew in size. Constraints on housing construction block that process so that economic growth instead leads to rising housing costs rather than population growth. The costs of inadequate housing fall most sharply on families with lower incomes as do the pressures to move away from cities with economic opportunity. New housing in a handful of metropolitan areas—Los Angeles, New York City, San Francisco, and Boston—has become so obstructed that their population growth has become countercyclical, sometimes even declining during recent periods of economic expansion. This is mostly due to outmigration of their poorest residents as housing costs rise.
After the Great Recession, all metropolitan areas have started to become more like this. Cities that had previously grown at high rates are now growing more slowly, and housing costs in the poorest neighborhoods are increasing. Mortgage access tightened during the Great Recession and has remained tight since. Peculiar correlations between rents, prices, and local incomes since the Great Recession, and the universality of the new trends, suggest that tighter mortgage access has slowed the construction of new homes. This especially has been the case in cities where average household incomes are lower and homebuyers are more sensitive to credit conditions. The end result of tightened credit access has been that home prices are at least as high as they were before the Great Recession, and rents are much higher, especially in neighborhoods with lower incomes.
JEL codes: R310, G510
Keywords: housing, housing price determination, housing prices, housing supply, regional housing market, residential real estate, mortgage lending