NCPA - National Center for Policy Analysis


March 20, 2007

"Superstar cities" are those with an inelastic supply of housing (that is, cities where it is difficult to construct new housing because of geographical constraints or zoning) and an appeal to a broad clientele of potential residents.  As households compete for the scarce locations, the ones with the highest willingness-to-pay -- a function of a household's desire to live in a given city and how much money it has -- bid up house prices, say authors Joseph Gyourko, Christopher Mayer and Todd Sinai.


  • Between 1950 and 2000, the price of housing grew by an inflation-adjusted annual rate of 2.2 to 3.5 percent in the 10 U.S. metropolitan areas with the highest rates of growth, and by 0.5 to 1.1 percent in the 10 U.S. metropolitan areas with the lowest rates of growth.
  • Over the same time period, the number of families living in U.S. metropolitan areas doubled and the number of families with inflation-adjusted incomes above $140,000 in 2000 dollars grew more than eight-fold.

Using a simple method to roughly categorize cities as "superstars," the authors find:

  • In the 1960-80 period, only San Francisco and Los Angeles clearly qualified.
  • Between 1970 and 2000, 20 more metropolitan areas, including New York and Boston, were added.
  • Cities that have experienced explosive growth but remain outside the superstar category, like Las Vegas and Phoenix, are distinguished by their ability to build enough housing to moderate price increases.

In short, residence in superstar cities and towns has become a luxury good.  The cities' increases in housing price appear to outstrip known productivity increases and the value of any additional amenities, say the authors.

Source: Linda Gorman, "Why Do House Prices Rise Faster in Some Cities?" NBER Digest, March 2007; based upon: Joseph Gyourko, Christopher Mayer and Todd Sinai, "Superstar Cities," National Bureau of Economic Research, Working Paper No. 12355, July 2006.

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