The NYTimes Magazine has an excellent article on the housing market based around a discussion of the development firm Toll Brothers. Bob Toll the president of the firm is predicting that US housing prices will converge with those in Europe.
"In Britain you pay seven times your annual income for a home; in the
U.S. you pay three and a half." The British get 330 square feet, per
person, in their homes; in the U.S., we get 750 square feet. Not only
does Toll say he believes the next generation of buyers will be paying
twice as much of their annual incomes; in terms of space, he also seems
to think they’re going to get only half as much. "And that average,
million-dollar insane home in the burbs? It’s going to be $4 million."
Toll agrees with Glaeser et al. that the key force driving up prices is zoning and growth regulations. In New Jersey it now takes Toll Brothers up to two million dollars in legal fees and ten years in time to get the permits necessary to build.
Susan Wachter, a housing economist at the Wharton School at the University of Pennsylvania, has an interesting public choice insight about why zoning is worse in Europe.
European towns also have less incentive to encourage development,
Wachter says, because they generally do not, unlike their American
equivalents, depend on their local tax base to pay for education and
services, which tend to be federalized.
This implies that towns in states that reduce their reliance on the property tax – often done, as in CA, in order to "equalize" school funding or other expenditure – will soon restrict development. Go to it graduate students.
Lots of other interesting material on the organization of the industry.