A model illustrates that structural estimation of long-term supply elasticity is difficult because variables that make places more attractive are likely to change neighborhood composition, which itself is likely to influence permitting.

Our framework also suggests that as barriers to building become more important and heterogeneous across place, the positive connection between building and home prices and the negative connection between building and density will both attenuate. We document both of these trends throughout America’s housing markets.

In this paper, we document that the sunbelt markets are no longer so elastic. The combination of declining output and rising prices indicates that the supply of new housing has shifted downward.

Two implications of our framework are that when supply limitations become more important, the positive correlation between price and construction will diminish and the negative correlation between price and density will move towards zero or flip sign.