Local regulations are a big problem, but so are federal ones. In particular, the mortgage market in America is hugely distorted by the implicit subsidies offered by Fannie Mae and Freddie Mac, the government-sponsored enterprises that buy and securitize a large majority of all mortgage loans nationally.
Crucially, loans qualify for purchase by Fannie and Freddie (and therefore have lower interest rates) only if they meet standards set by the Federal Housing Administration. These standards have always been hugely biased towards suburban single-family homes [0], and in some ways have become even more so recently. For example, Dodd-Frank amended the FHA rules to stipulate that at least half of the units in any new multi-family condo building must be sold before any buyers can qualify for an FHA-approved mortgage on any unit in the building. This rule alone has effectively killed the market for new-construction condo buildings in most American cities, since only luxury buildings in the hottest markets can expect to pre-sell half or more of their units to cash buyers or buyers who can get spec mortgages.
0. E.g., by specific practices such as "redlining", introduced by the National Housing Act of 1934, which created the FHA (see https://en.m.wikipedia.org/wiki/Redlining), but predominantly by lending standards which have always been far more lenient for new single-family homes than for any other form of housing. Federal housing and transportation policy have also promoted suburban over urban development in myriad other ways; for a broad take, I recommend Kenneth Jackson's book Crabgrass Frontier: The Suburbanization of the United States (1985), https://www.amazon.com/Crabgrass-Frontier-Suburbanization-Un....
Crucially, loans qualify for purchase by Fannie and Freddie (and therefore have lower interest rates) only if they meet standards set by the Federal Housing Administration. These standards have always been hugely biased towards suburban single-family homes [0], and in some ways have become even more so recently. For example, Dodd-Frank amended the FHA rules to stipulate that at least half of the units in any new multi-family condo building must be sold before any buyers can qualify for an FHA-approved mortgage on any unit in the building. This rule alone has effectively killed the market for new-construction condo buildings in most American cities, since only luxury buildings in the hottest markets can expect to pre-sell half or more of their units to cash buyers or buyers who can get spec mortgages.
0. E.g., by specific practices such as "redlining", introduced by the National Housing Act of 1934, which created the FHA (see https://en.m.wikipedia.org/wiki/Redlining), but predominantly by lending standards which have always been far more lenient for new single-family homes than for any other form of housing. Federal housing and transportation policy have also promoted suburban over urban development in myriad other ways; for a broad take, I recommend Kenneth Jackson's book Crabgrass Frontier: The Suburbanization of the United States (1985), https://www.amazon.com/Crabgrass-Frontier-Suburbanization-Un....