Affordability of Owner-Occupied Housing across U.S. Cities

This paper compares the affordability of owner-occupied housing across US cities. We apply a new method for imputing the rental value of owner-occupied housing developed in Diamond and Diamond (2024) that accounts for unobserved house quality. On average, the rental value of owner-occupied housing is 3.2 percent above that implied by standard hedonic methods. Hedonic methods overestimate rental value of owner-occupied housing in the most regulated cities and sharply underestimate it in the least regulated cities. We provide suggestive evidence that this heterogeneity reflects misallocation, where high-quality housing stock cannot be built in the most desirable parts of regulated cities.