A fix for our new house price madness

A common objection to the idea that planning restrictions make housing unaffordable is that some other factor is said to be more important. Leading candidates include low interest rates, high immigration, tax concessions and location premiums.

However, contrary to what is often thought, these demand-side explanations are not alternatives to the standard view. They are complements. The importance of these demand-side factors does not weaken the argument that zoning matters. It clarifies it.

Planning restrictions raise prices by limiting supply. In terms of high-school economics, they make the ‘supply curve’ steep or inelastic. The factors mentioned above raise demand — they shift the ‘demand curve’ out.

High house…