I asked ChatGPT - Grok: In U.S., what has most caused high house prices, bank regulations or illegal immigration?

I asked ChatGPT:

"In the U.S. what has most caused high house prices; decades of lower bank capital/equity requirements against residential mortgages than against loans to e.g., small businesses, or around 15 million of illegal immigrants?"

ChatGPT answered:

"Good question — it gets at a big and contentious debate. The evidence strongly suggests that the biggest driver of high U.S. house prices is supply-constraints + regulatory and credit/finance conditions, rather than solely the presence of roughly 15 million illegal immigrants. Below I unpack why — and where immigration does play a role (but a much smaller one).

✅ Key structural constraints — supply, regulation, and credit

• Chronic underbuilding + regulatory constraintsThere is a large and growing shortfall in housing supply. According to a recent assessment by Goldman Sachs, the U.S. would need to build “3–4 million additional homes beyond normal construction” to restore affordability. 

Local land-use regulations, zoning laws (exclusionary zoning, restrictions on density, single-family zoning, limits on multi-unit housing), and lengthy permitting processes significantly constrain how many new homes can be built. 

In many desirable metropolitan and coastal areas (e.g., parts of California, New York), housing construction has lagged job and population growth — a classic supply–demand imbalance that pushes up prices. 

As a result, both rents and sale prices have risen steeply as demand kept outpacing supply. 

• Credit supply, interest rates, and mortgage finance policiesEasier access to credit and favorable mortgage conditions (especially pre- and post-2008 through government-supported agencies, looser loan-to-value and collateral requirements, and securitization) boosted demand for housing, which amplified price increases when supply couldn’t keep up. 

Some academic research finds that expansion in mortgage credit contributed strongly to booms (and busts) in local housing markets.

On the regulatory side: proposed increases in capital requirements for banks for residential mortgages (in some versions of the Basel III-based banking rules) may reduce banks’ willingness to lend, especially on high-loan-to-value mortgages, which could dampen supply of credit or alter lending terms — potentially affecting affordability and demand. 

Nonetheless, even before we assign much weight to bank-capital/regulation changes, credit-driven demand + supply constraints appear to explain a large share of price increases. 

In short: decades of underbuilding, restrictive zoning/land-use laws, regulatory limits on what kinds of housing can be built, plus expansions in mortgage lending and low interest rates — together they created a structural imbalance between demand and supply. That structural imbalance has been the main engine of rising house prices in the U.S.

🔎 What about immigration — including undocumented immigrants?Immigration (legal or undocumented) does add demand: more people need housing. Economists recognize this effect in principle — more population generally increases demand.

But empirical estimates suggest that the effect at the national level is modest. For example, a 2007 study cited by analysts found that a 1% increase in a city’s immigrant population raised rents and home values by roughly 1%.

More recent analyses conclude that immigration is not the primary cause of the housing affordability crisis. 

Some arguments advanced by anti-immigration advocates (or political figures) — that millions of illegal immigrants are chiefly responsible for soaring home prices — are repeatedly rated as misleading by fact-checks, because they ignore the central role of supply shortages and regulation.

Also: immigrants contribute significantly to the construction workforce — ironically helping build housing.

Bottom line on immigration: yes, more people (immigrants or not) mean more housing demand, which can put upward pressure on prices — but the magnitude of the effect is relatively small compared to structural supply constraints, regulatory bottlenecks, and mortgage/credit conditions.

I said: Thanks. 

It replied: Glad it helped. If you want to revisit any part—credit effects, zoning, capital requirements, or immigration impacts—just let me know.

I asked Grok

"In the U.S. what has most caused high house prices; decades of lower bank capital/equity requirements against residential mortgages than against loans to e.g., small businesses, or around 15 millions of illegal immigrants?"

Grok answered: 

"Decades of lower bank capital requirements (risk weights) for residential mortgages—typically 50% or less under Basel rules, vs. 100%+ for commercial/small-business loans—have far more strongly driven U.S. house price inflation than immigration.

This policy, in place since the 1980s–1990s, makes mortgage lending artificially cheap and profitable for banks, channeling excessive credit into housing, amplifying demand, and fueling repeated booms (2000s bubble, post-2012 rise, 2020–2022 surge). Studies on capital changes show even modest increases in mortgage capital requirements reduce house prices (e.g., ~2–3% drop per notable tightening), implying the longstanding low requirements have added substantially more over time.

Recent immigration surges (net ~5–8 million additional unauthorized immigrants since 2020, not 15 million new) have added housing demand, mostly to rentals, with estimates of ~1% price/rent increase per 1% population growth at most—and often less, as immigrants also supply construction labor. The major house-price spikes (e.g., +50% from 2019–2022) occurred before the peak immigration wave and were driven by low rates + credit supply, not population.

Primary drivers remain supply restrictions (zoning/NIMBYism) + easy mortgage credit, in which favorable capital treatment plays a key structural role. Immigration is a secondary, recent factor at best."

I said: Thanks!

It replied: You're welcome! Happy to help.