America's Suburban Building Boom Declared Dead: 15 Million Missing Homes & Counting

America has 15 million fewer homes than it should, a shortage driven by the collapse of housing construction in once-booming sunbelt suburbs where opposition has essentially shut down development

Photo by Tom Rumble on Unsplash

A new NBER working paper, "America's Housing Supply Problem: The Closing of the Suburban Frontier?" by Harvard's Edward Glaeser and Wharton's Joseph Gyourko, documents how the suburban frontier that powered American homeownership for generations is closing. Markets like Phoenix, Atlanta and Dallas, which built aggressively through the 1990s, now look increasingly like supply-constrained coastal cities, with soaring prices and flatlined construction.

By the numbers:

• Housing production fell from 4% annual growth in the 1950s to 0.64% in the 2010s

• America built 50 million homes from 1950-1980, but only 8.5 million in the 2010s

• Real home prices hit historic highs in 2024, up 15% above pre-GFC peaks nationally

• Miami prices are up 155% since 2012; Phoenix up 157%; Dallas up 95%

• Construction costs rose 25% since early 2000s but explain less than half the price surge

• Miami's suburban share of new homes (low-density, high-price areas) crashed from 44% in 1970s to 12% in 2010s

What the data shows:

• 44 major metros analyzed: Researchers used 1970-based census tract boundaries to track consistent geographic areas over 50 years

• Supply elasticity collapsed: In 1970s Dallas suburbs, a 10% price increase sparked 7.2% more construction. By 2010s? Under 1%

• Density isn't the constraint: Phoenix's median tract has just 3.5 homes per acre. The negative correlation between density and new construction has actually weakened or reversed

• Geography of decline: Among metros growing fast 1980-2000, only Houston and San Antonio maintained momentum through 2020

Key insights from the research:

• Empirical vs. structural supply: The paper distinguishes between what we can measure (the relationship between prices and construction) and true supply elasticity, which is confounded by neighborhood change

• Endogenous regulation: When high-demand areas attract wealthier residents, those residents often implement stricter anti-development rules

• The permitting cost formula: Total costs = physical construction × density factors × growth restrictions × neighborhood-specific barriers

• Industry devastation: Homebuilder establishments fell 50%+ between 2004-2022; employment dropped 60% and never recovered nationally (though Dallas/Houston rebounded)

• Remodeling boom: As new construction became harder, remodeling employment surged as workers shifted to the less-regulated renovation sector

• Metropolitan convergence: Growth rates across top 50 metros compressed dramatically. Former building champions like Las Vegas, Orlando, Raleigh, Riverside CA saw massive slowdowns

• The WRLURI factor: Metropolitan areas with stricter land use regulations (measured by Wharton index) showed steeper declines in supply responsiveness

• Price-to-construction cost ratios: In 1990, 65%+ of sunbelt suburbs had prices below 80% of construction costs. By 2023, 23-41% exceeded costs by 20%+

What changed: It's not land availability. The researchers find little evidence of a "density wall." Instead:

• Existing homeowners weaponize local regulations more effectively over time

• Political economy follows Mancur Olson's model: insiders protect rents, exclude outsiders (Dave’s note: would like to see a bit more on construction consolidation, especially unlike the Cali market, they are main forces for SFZ and deed restrictions in the Texas market, but political economy somewhat covers it)

• Wealthier, educated residents who move to high-amenity areas subsequently restrict development

• The variance in permitting difficulty across neighborhoods has increased dramatically

Alternative explanations considered and rejected:

• Construction costs: While up 25%, this explains only a fraction of price growth in most markets

• GFC aftermath: Dallas and Houston prove the industry can recover where allowed to build

• COVID/interest rates: The supply shift began decades before these recent shocks

• Built-out suburbs: Most sunbelt metros still have vast low-density areas

Bottomline: America's housing affordability crisis stems from thousands of local political battles where incumbent homeowners systematically win, transforming the sunbelt into a collection of mini-San Franciscos, one suburb at a time.