Zoning Laws Transfer Wealth in the Wrong Direction

Since the huge crime drop that began in the 1990s, cities have become a more attractive place for young and high-income people to live. At the same time, the shift of the economy toward knowledge-based industries has made cities more important to the economy, since ideas and workers can easily move from company to company within industrial clusters. These factors, combined with steadily increasing U.S. population, have increased demand for urban real estate. But supply hasn’t kept up. Zoning laws and other restrictions make it hard for residential developers to build more densely in cities and the immediate suburbs.

When demand increases and supply doesn’t keep up, price tends to rise. Thus, it is no surprise that rent has been going up faster than the overall cost of living in the U.S. Here is a graph of the rent urban consumers in the U.S. pay on their primary residence, divided by the overall consumer price index: