The US didn’t always have zoning laws. They gradually started to crop up in the 20th century. The Supreme Court first ruled that zoning could be used to allow neighborhoods to restrict building to specific types in 1926. This didn’t have a significant impact until the 1970s, when the Baby Boomer generation caused builders to be unable to keep up with the demand for large numbers of suburban single family residences. There was plenty of labor and materials, but there was now a large sector of the population demanding housing near high-paying jobs, transportation, culture, good schools, and good infrastructure. The only space available was the suburbs.
So what happens when zoning laws are too restrictive? Construction is reduced, thus making it impossible to meet demand. House prices increase. Even quality of life is decreased, as homebuyers must spend a larger percentage of their income on homeownership. Income can’t keep up with the increase in home prices, meaning fewer people are able to buy and the market becomes unstable.
Fortunately, recent changes in the laws are aimed at ameliorating the situation. Affordable housing bills reform the zoning code to allow for higher density, low- and moderate-income housing. The bills also seek to streamline approval processes and aid the homeless.