America is not facing a nationwide affordable housing crisis. In most of the country, home prices appear to be fairly close to the physical costs of construction. In some of the country, home prices are even far below the physical costs of construction. Only in particular areas, especially New York City and California, do housing prices diverge substantially from the costs of new construction.

In the areas where houses are expensive, the classic urban model fares relatively poorly. These areas are not generally characterized by substantially higher marginal costs of land as estimated by a hedonic model. The hedonic results imply that the cost of a house on 10,000 square feet is usually pretty close in value to a house on 15,000 square feet. In addition, these high prices often are not associated with extremely high densities.