This paper studies a supply-side channel through which income inequality increases house prices in the United States. We develop a conceptual framework in which greater income inequality leads to more restrictive housing regulation, tighter housing supply, and higher house prices. Using county-level data from 1990 to 2017 and a novel Bartik-style instrument for the Gini coefficient, we find that a one standard deviation increase in the Gini coefficient raises house prices by 26 percent, accounting for roughly 8 percent of the house price increase over this period. Consistent with our framework, more unequal areas exhibit both higher house prices and fewer housing units. A one standard deviation increase in the Gini coefficient is associated with a 0.35 standard deviation increase in the Wharton Residential Land Use Regulation Index, a 58 percent decline in building permits issued over the subsequent decade, and a 2 percentage point decrease in the homeownership rate. Our findings highlight how income inequality shapes housing market dynamics through its impact on housing regulations and supply constraints, with important consequences for housing affordability.

We show that buyers higher in the income distribution earn higher capital gains on housing. Geographical location accounts for nearly all the difference in capital gains by income rank, whereas market timing, property type, and buyer characteristics matter little. Because high-growth locations are also high-priced, lower income households face tighter borrowing constraints precisely where capital gains are highest. Yet mortgage-market reforms aimed at changing credit access produced no detectable change in the income composition of buyers across locations, consistent with limited re-sorting under inelastic housing supply. Unequal access to high-appreciation markets is thus a plausible source of persistent wealth differences across income groups.