The on-line academic journal EconJournal Watch (Vol. 8, Issue 1, January 2011) has an interesting and very useful exchange between Wendell Cox and economists Haifang Wang and Yao Tang on whether restrictive land-use regulations contributes to housing price swings and housing market volatility. Cox and Wang/Tang agree, but differ on the magnitude of the effect.
The Wang/Tang paper, “U.S. Land Use Regulation and the U.S. Housing Price Cycle Between 2000 and 2008,” is a bit technical but provides solid academic evidence that the effects of restrictive housing regulations on the supply side of the housing market are an important contributor to housing price volatility. The authors examined housing markets in 300 US urbanized areas between 2000 and 2009. Thus, they make the housing price booms and busts bigger by making the entire housing market less stable and more volatile.