Regulation and zoning

Why is Manhattan so expensive?
Regulation and the rise in house prices. Edward Glaeser, Joseph Gyourko, and Raven Saks, November 2003

House prices have soared in Manhattan and other cities in the 1990s, rising more than the national average. Why have they risen so much? In recent years, average condominium prices have exceeding US$600/sq ft. But construction costs are less than US$300/sq ft. Why hasn't new supply competed prices down?

Regulation explains these cities' high residential prices, the authors suggest. It seems residents are using zoning laws and popular protests to slow new construction, thus maximizing dwelling values. Consistent with this, the ratio of price to construction costs is much lower for commercial buildings, with values often falling below replacement costs, which has never happened for Manhattan's apartments in the past two decades. The difference is that Manhattan's voters are apartment owners, but do not own the offices they work in.