Does housing supply impact on inequality?

Dr Crampton cites Avent's thesis that the rich have "used zoning regulations to inflate the value of their main housing asset, at the expense of those then unable to afford a house". He goes on to quote this passage where Avent addresses the question:

What would happen if we got rid of all restrictions on the construction of new housing? We should see lots of new investment in places where the gap between housing costs and construction costs is largest: in central London, New York, San Francisco, and so on. Housing cost growth in those cities would slow relative to income growth, real wage growth would soar, and many more people would move in. Over time, prices would converge toward construction costs. More people would be working at higher wages and productivity levels, which suggests that inequality in labour income should fall and the labour share should rise.

Some of the complaints published regularly in The Age about sprawl and the rate and scale of development in the centre of Melbourne are important and warrant the close attention of planners. But as the stark contrast between housing supply/prices in Melbourne and Sydney shows, everything comes at a cost.

At least in comparison to Sydney, Melbourne is getting some aspects of housing supply mostly right, especially in the city centre and the fringe. Progressives who're concerned about issues like inequality and social justice need to understand everything involves trade-offs; they need to factor in the big picture as well as traditional planning concerns.

The new metropolitan strategy for Melbourne, Plan Melbourne, actively limits the scope for construction of medium density housing in the established suburbs (see Does this strategic plan really spurn sprawl?). Mr Guy therefore needs to make sure that his proposed alternative sources of supply, especially urban renewal areas, have the muscle to keep up with demand.