Manufactured Scarcity
How America got great at blocking construction
Guest:
Edward Glaeser,
Professor of Economics at Harvard University
Episode 55 | The Construction Lending Podcast
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America has more land than almost any country on earth and a long history of building fast and cheap, so why can’t we produce enough housing? This week, Harvard economist Edward Glaeser, author of Triumph of the City and Survival of the City, joins us to argue that the affordability crisis is fundamentally a construction problem, and one we’ve inflicted on ourselves. We trace how decades of hyperlocal land-use regulation quietly turned America from a country built for outsiders into one that protects insiders, why an industry that once mass-produced entire neighborhoods now builds one unit at a time, and what the crisis is really costing us in productivity, in upward mobility, and in a generation locked out of homeownership. Glaeser also lays out where he sees room for hope, from accessory dwelling units and prefab housing to smarter ways of tying federal dollars to construction. It’s a wide-ranging, clear-eyed conversation about how we manufactured our own scarcity and what it would take to build our way out.
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Questions Answered
Housing is expensive in high-demand parts of the U.S. primarily because we don’t build enough of it, not because we’ve run out of land or ability. Harvard economist Edward Glaeser calls this “manufactured scarcity in a land of abundance”: strong demand to live in productive places collides with decades of restrictive local rules that hold supply down, and prices climb as a result.
It’s mainly a supply problem. Demand to live in productive cities is healthy and expected, but the supply of new housing has been artificially constrained by land-use regulation. Glaeser argues the affordability crisis is at its core a construction problem: the country that once mass-produced entire neighborhoods now struggles to add units one at a time.
Zoning and hyperlocal land-use rules raise housing costs by limiting what can be built, slowing approvals, and giving neighbors the power to block or shrink new projects. Because these rules are set at the very local level, they rarely account for the people who would move in if the housing existed, so supply stays low and prices stay high even where demand is strongest.
Manufactured scarcity is the idea that America’s housing shortage is self-inflicted rather than natural. The U.S. has abundant land, a strong history of transportation infrastructure, and mature mortgage and construction lending markets, yet a patchwork of local regulations has made it steadily harder to produce housing at scale. The scarcity is a product of policy, not geography.
Construction productivity has fallen largely because regulation broke up the scale that once made homebuilding efficient. After 1945, highways and long-term mortgages enabled mass production and homes-per-worker soared. Since around 1970 that trend reversed: projects got smaller, most construction firms became tiny, and builders now spend years navigating approvals instead of driving down costs.
Yes, ADUs help at the margins and have become one of the most successful reforms because voters like them. Letting a homeowner add a second unit is what Glaeser calls “charismatic housing,” popular enough to pass where bigger reforms stall. ADUs don’t solve the shortage alone, but in states like California they now account for a large share of new permits.
Prefabricated and modular housing can meaningfully lower costs, but only if regulation allows it to scale. Glaeser points to Japan, where a small number of standardized national zones lets a prefab model approved in one place work across the country, supporting a healthy prefab market. In the U.S., bespoke local rules make that kind of national scale difficult.
The insider-outsider problem describes how local control over development protects existing residents at the expense of newcomers. When every neighbor can veto every project, the people who would benefit from new housing but don’t yet live there have no voice. Glaeser frames this as a shift from a country built for outsiders to one that privileges insiders.
Fixes generally involve reducing veto points and reconnecting the freedom to build with real accountability. Ideas discussed on the episode include as-of-right permitting with pre-approved prefab models, streamlined and transparent fees in place of multi-year approvals, tying federal transportation and grant money to actual construction, and “loser pays” rules to discourage lawsuits that block growth.
Episode Recap
Manufactured Scarcity: Edward Glaeser on Why America Stopped Building
America has more land than almost any country on earth and, for much of its history, a genius for producing housing quickly and affordably. That contrast is the puzzle at the heart of this episode of The Construction Lending Podcast. Our guest, Harvard economist Edward Glaeser, author of Triumph of the City and Survival of the City, has spent 25 years assembling the answer, and it is not a comfortable one: the housing affordability crisis is a construction problem, and we manufactured it ourselves.
What follows is the arc of the conversation, from how the country lost an ability it once had to the reforms Glaeser believes could bring it back.
A land of abundance that chose scarcity
Glaeser’s forthcoming book carries the working subtitle Manufacturing Scarcity in a Land of Abundance, and that phrase does a lot of work. The country has the land. It has a long record of laying down transportation infrastructure across and within its cities. It has mature mortgage and construction lending markets. By every input that should matter, America ought to be exceptional at producing housing.
Instead, as Glaeser put it, we have become very good at saying no. The scarcity is not a fact of geography or a limit of technology. It is the accumulated result of countless local decisions, each one defensible on its own terms, that together made it harder and harder to add homes where people most want to live.
How the country lost an ability it used to have
One of the most striking parts of the conversation is that this was not always the case. From 1900 to 1940, construction was largely flat, and critics openly wondered why the industry could not modernize the way carmakers had. Then, after 1945, it did. Two forces changed everything. Highways opened up farmland within commuting distance of cities, so builders could assemble large parcels and develop them all at once. Long-term mortgages through the VA and FHA put homeownership within reach of returning veterans and millions of other families at the same moment.
The result was an explosion of mass production and a surge in the number of homes each worker could complete. Then, around 1970, the direction reversed. Using an algorithm that identifies building projects from administrative data, Glaeser and his collaborators can watch the large developments of the 1950s and 60s all but vanish, with a brief exception in the mid-2000s around Phoenix and Las Vegas. Projects shrank, firms fragmented, and the scale that had driven efficiency disappeared.
Glaeser is emphatic that this is not the fault of builders. Given the ability to work at scale again, he believes the industry would resume doing remarkable things. The constraint is not the people who build. It is the framework they have to build within.
A parable about insiders and outsiders
The deeper story Glaeser tells is about who the country is for. In early Los Angeles or Chicago, developers owned land and were desperate to fill it, which meant they were constantly trying to attract people who did not yet live there. A retiring Iowa farmer was a customer to be won. Their incentives pointed outward, toward newcomers.
As communities handed every neighbor the power to veto every project, those incentives flipped. A resident weighing a proposed development thinks about his own block, not about the family that would move in if the homes existed. Glaeser calls this the paradox of democratic disenfranchisement: the more you empower local vetoes, the more completely you silence the outsiders who have no seat at the table. It is, in his telling, a country that was built for outsiders slowly becoming one that protects insiders above all.
He traces the legal turn through history. In the 19th century, localities could regulate land for clear public-safety reasons like fire and contagion, while regulating purely for appearance was treated as a taking that required compensating the owner. That distinction eroded over the decades, and comprehensive zoning became the norm after the Supreme Court upheld it in the 1920s. The tool that was meant for safety became a tool for saying no.
Why this quietly costs everyone
The damage runs well past sticker prices, and Glaeser walks through it deliberately. Because so little was built in the country’s most productive regions, fewer people live and work in the places where they would be most productive, which drags on the whole economy. The neighborhoods most skilled at blocking construction are often the same ones best at lifting lower-income children into higher-earning adulthood, so blocking housing there zones out mobility itself. Some of the lowest-energy places to live are among the hardest to build in, so the restrictions carry an environmental cost too. And a generation that grew up expecting to own a home now watches starter homes drift out of reach while longtime owners capture enormous gains.
As if every car that rolled off the line at General Motors had to have six neighbors sign off before it could leave the lot. That, Glaeser says, is roughly how the country now regulates housing, project by project rather than company by company.
Reasons for optimism
Despite all of it, Glaeser is an optimist, and he has the receipts. His recent research across 160 countries shows that meaningful reform does happen, particularly when a change avoids a pileup of veto points. The versions most likely to survive contact with local politics are what he calls charismatic housing, the changes voters actually like.
Accessory dwelling units are the clearest example, already popular and a large share of new permits in California. Prefab and modular housing hold real promise if they are allowed to scale, and he points to Japan, where a handful of standardized national zones let a model approved in one place work across the country. Beyond those, he is drawn to as-of-right permitting with pre-approved designs, simple and fast fees in place of opaque multi-year approvals, tying federal transportation dollars to actual production in productive areas, and being more aggressive on “loser pays” so lawsuits meant to block growth carry more risk for the people filing them.
Asked for a single wish, he keeps it concrete: locally, a set of pre-approved prefab models buildable as of right on a modest lot; nationally, transportation spending linked to housing production where it does the most good.
Social Links
Harvard Kennedy School faculty page: https://www.hks.harvard.edu/faculty/edward-glaeser
Harvard Cities profile: https://cities.harvard.edu/about/person/edward-glaeser
Books: Triumph of the City and Survival of the City (Penguin Press)
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