Brad DeLong discusses the factors that led to the late housing boom and includes factor number four "The filling-up of America so that you can no longer build a detached single-family house within half-an-hour's driving time of the interesting places people want to be, and the consequent rise both in current location premia and expected future location premia." It seems to me that if you look at escalating prices for apartments and row houses in New York City or Washington, DC it's not reasonable to see this "filling-up" phenomenon as limited to the issue of detached single-family houses. The problem issue the traffic which is bad everywhere anyone wants to be.
Part of the rah-rah media atmosphere of the boom years was that price increases were defined as "good," which meant that anything that led to price increases, including a tightening supply of places where one could live and then swiftly get around to interesting spots, was also defined as good. In the real world, though, a shortage of desirably located dwellings is no more a good thing than is any other kind of shortage. The question is what can be done about it?
The good news is that a large part of the answer is just to stop shooting ourselves in the feet. Building homes is, of course, an expensive enterprise. But as America's economy has grown, housing, defined literally, has gotten more affordable. That's why people live in bigger homes with better appliances than they used to have. The scarcity doesn't come from the fact that we can't afford to increase the supply of dwellings; the problem is that it's really hard to get permission to increase the supply of dwellings that are in the locations where people want to live.
This is nice for incumbent homeowners in the exact location in question, but from a social point of view it's perverse and ultimates makes everyone's life worse. If we just let people build and buy in the spots where demand is ultra-high, then more people could conduct a higher proportion of their business on foot or on bike and the overall increase in the number of people who could fit within Brad's 30 minute travel radius before it got "filled up" would be much higher.
On top of that, there's the politically more difficult issue of reorienting our transportation policies away from the goal of increasing the aggregate land area and toward maximizing the number of people able to enjoy a high quality of life rather than lengthy commutes and frequent traffic jams. That means maintaining our roads better, and putting a price on using them at peak times. It means building more sidewalks and bike lanes and rapid transit options. Yes, this stuff is expensive. But we've had expensive transportation projects in the past (the interstates, the NYC subway, etc.) and the country is, overall, much richer than ever. Under the circumstances, it's absurd for us to reconcile ourselves to ever-worsening congestion problems and ever-growing scarcity of favorably located housing. These problems don't arise just because a country "fills up," they arise because we're not responding to economic growth and population growth in an intelligent way.
Photo by Flickr user Richard Masoner used under a Creative Commons license