Rising demand for urban living by the elite could be met largely by increasing supply. There's still room to build, even in New York, especially upward. Yet while there is something of a building boom in the city, it's far smaller than the soaring prices warrant, mainly because land use restrictions are in the way.
And this is part of a broader national story. As Jason Furman, the chairman of the White House Council of Economic Advisers, recently pointed out, national housing prices have risen much faster than construction costs since the 1990s, and land-use restrictions are the most likely culprit. Yes, this is an issue on which you don't have to be a conservative to believe that we have too much regulation.
Here are shades of the Paul Krugman of the 1990s. He uses basic microeconomics to analyze a major problem--why have rents and housing prices risen so much--and to present a solution--eliminate or at least relax the land use restrictions that are restricting supply. Good for him.
When I discussed inequality of income and wealth in my economics class recently, I contrasted two kinds of people in the top 1% and gave an example of each: (1) the chainsaw innovator, Robert McCulloch, whose light one-man chainsaw made life better for many people and also increased inequality, and (2) the privilege seeker, Lyndon B. Johnson, who used the Federal Communications Commission regulations to support a monopoly for his wife's radio station in Austin, which increased inequality but made others worse off.
I pointed out that, in a certain sense I'm a mini-LBJ, but not a willing one. The top 20 percent in coastal California (measured by wealth, not income), I pointed out, probably have a large percent of their net worth in their house and, if they bought their first coastal California houses more than 20 years ago, which most of them probably did, they are gaining from supply restrictions. The reason I'm not a willing mini-LBJ is that I would like the restrictions to end. I'm glad to have Paul Krugman as an ally.