Abstract
Large long-run differences in average house price appreciation across metropolitan areas over the past 50 years have led to wide spatial dispersion in house prices. We show this can be explained in large part by inelastic supply of land in some attractive locations combined with an increasing number of high-income households nationally. The resulting high house prices crowd out lower-income households from living in high price growth superstar housing markets, inducing a right-shift in the local area income distribution. We observe the same pattern among municipalities within a metropolitan area when the number of high income households in the metropolitan area grows. These facts suggest that disparate local house price and income trends can be driven by aggregate demand, not just changes in local factors such as productivity or amenities.