Behind the boom: engineering the housing bubble.

• Author: Sanchez, Julian
• Position: Citings - Brief Article

As marketing watchers puzzle over the current housing boom, a recent study suggests government may be fueling price increases.

In a paper to be published in the American Economic Review, two Harvard economists, Edward L. Glaeser and Raven E. Saks, and Joseph Gyourko, a professor of finance and real estate at the University of Pennsylvania, note that housing prices have been rising at a brisk clip since 1950. Until about 1970, they increased more or less in tandem with construction costs. But in recent decades, the gap between house prices and construction costs has been increasing in many metropolitan areas, especially in the highest-priced markets. Normally, rising prices lead to a corresponding construction boom, yet new building seems to have lagged behind ballooning price tags. Evidence points to manmade scarcity, in the form of government regulations on new housing, as the culprit.

One factor, Glaeser and his co-authors note, is a trend toward court decisions hostile to new...