For a few years now, Joseph Gyourko has been doing research and writing essays with a focus on housing supply, and in particular, how a collision between local restrictions that hinder home-building combined with growing demand in those localities lead to differences in prices. In an interview with Hites Amir, Gyourko lays out these views in the April 2017 issue of the Global Housing Watch Newsletter.
 (The newsletter is produced by Amir, who works fo the International Monetary Fund, but it is not an official IMF document).

“In forthcoming work, Ed Glaeser and I conclude that most housing markets in the interior of the country function so that the price of housing is no more than the sum of its true production costs (the free market price of land plus the cost of putting up the structure) plus a normal entrepreneurial profit for the homebuilder. That is what we teach should happen in our introductory microeconomics courses—namely, that price paid by consumers in the market should equal the real resource cost of producing the good (housing in this case). These well-functioning housing markets exist in a broad swath of the country outside of the Amtrak Corridor in the Northeast (Washington, D.C. to Boston) and the major West Coast markets from Seattle all the way down to San Diego. The bulk of the population lives in these well-functioning markets, by the way. They just are not focused on by the media. …

“Restrictions began to be imposed in many west coast markets in the 1970s, with east coast markets in the northeast following the next decade. Thus, it is the people who owned in those markets at those times who enjoyed the most appreciation in their homes. Those people tend to be senior citizens today, and even if they do not earn relatively high incomes, they are wealthy because of the real capital gains on their homes. …  

“If they limit supply sufficiently relative to demand, then the existing housing units will be rationed by price. Richer households will be able to bid more to live in their preferred markets, so we get the sorting of the rich into the higher priced coastal markets. … The divergence in home prices between low cost, elastically supplied markets and high cost, inelastically supplied markets has been growing over time—since 1950, at least. …  This can generate a spiral up in prices, and it can last a long time. In 1950 for example, housing in the most expensive metropolitan areas was about twice as costly as in the average market. At the turn of the century in 2000, the most expensive metros were at least four times more costly than the average market. I expect that gap to widen over the coming decade. …