Regulatory restrictions on housing supply lead to high prices and discourage workers from locating in productive cities. I study why regulation emerges and how it affects allocation of labor across space, wages, housing prices and aggregate productivity. I document that the dispersion of wages and housing prices across U.S. metro areas has increased and the sorting of college graduates into highly productive and expensive places has become stronger since 1980. I argue that these rising regional disparities have been amplified by the choices of residents of the most demanded metro areas to tighten regulation. To quantify this amplification effect, I build a general equilibrium model with multiple locations and heterogeneous workers.