This chart shows something's gone wrong with the US housing market

The United States is a large and diverse country, and one important way that manifests itself is in the drastic variability of the price of houses from place to place. This map illustrates the Department of Housing and Urban Development's "fair market rent" for a two-bedroom dwelling in each state of the union:

The basic picture that houses are more expensive on the coasts and in California and more expensive in more urbanized states than in rural ones will probably not come as an enormous shock. But the extent to which prices are high across the board in the Northeast is worth dwelling on a bit. Vermont and New Hampshire don't contain big cities and, except for a tiny sliver of New Hampshire, aren't actually coastal, but they're still far more expensive than Southern and Midwestern markets. And the most expensive state on the Eastern Seaboard is New Jersey — much more a series of suburbs of large cities than a state that contains a large city per se.

But it's also worth dwelling on the fact that even though "everyone knows" house prices vary from place to place, there's actually something a bit mysterious about the divergence. If a house in New Jersey is twice as valuable as a house in Arkansas, why don't we build a bunch more houses in New Jersey? Now, it's true that hiring construction workers in New Jersey will cost more than hiring them in Arkansas, but is it really double?

That seems unlikely. Here's a chart that appears in a talk White House Council of Economic Advisers Chair Jason Furman delivered this morning at the Urban Institute. It shows that across the country as a whole, the price of houses has grown much more rapidly than the price of building houses.

Gyourko & Molloy

The issue is, roughly, zoning. In order to take advantage of the gap between construction costs and sale prices, you have to be able to get permission to build more houses. And expensive towns in New Jersey and other pricey suburban coastal communities generally make it impossible to do that. Regulations mandate single-family detached homes, often on large lots, which makes it impossible to add the additional housing that the market is telling us people want to buy. If you happen to have bought a house in the mid-'90s or earlier, that's convenient for you, and you've seen the value of your investment increase a lot.

But for younger people, for renters, and for the overall cause of social and geographical mobility it's a disaster.

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