Government regulations often impose different costs under different conditions, thereby altering firms’ behavior by changing which activities are more or less profitable. Usually, markets are excellent at balancing the cost of projects with their projected value, yielding beneficial results of all kinds. But, by distorting relative cost structures, such artificial incentives drive labor and resources away from their most productive uses. Businesses are led to make more decisions with regulators in mind — not their consumers.
One variety of this phenomenon is called “bunching,” or the abnormal concentration of firms right below a specific policy threshold — such as a size or output limit — because they intentionally stop short of crossing that line to avoid the associated costs. If the costly threshold did not exist, many firms would presumably exceed it and produce more.
In America, bunching often occurs in construction due to housing regulations. Exhibit A:
NYC ran an experiment: a separate minimum wage for construction workers on buildings above 99 units ($72.50 an hour)
As a result, almost all construction has been scaled back to 99 units, and we’ve built significantly less housing https://t.co/PcyZKo7lpR pic.twitter.com/3vK8DG04NL
— Basil🧡 (@LinkofSunshine) August 1, 2026
For comparison, you can see here what the distribution of New York City construction looked like before the city deliberately made it far more expensive to make buildings with more than 99 units:
I have a chart for you! pic.twitter.com/uNjcgkmR7b
— Chris Goldammer (@floor_per_area) August 1, 2026
The result of this policy program (which was intended to boost housing construction) is fewer housing units overall, as developers who would previously build more than 100 units now cap themselves at 99. But at least the workers on projects that don’t exist are paid higher minimum wages.
The same kind of thing occurs in France. Exhibit B:
Similarily, France has a law where hiring a licensed architect becomes mandatory for housing units >150 sq m.
Consequently, the graph of house sizes each year looks like this. https://t.co/6OpW9Ig7gC pic.twitter.com/RxUWhHD0wN
— Hunter📈🌈📊 (@StatisticUrban) August 2, 2026
Here too, larger housing would exist if regulators did not impose an arbitrary notch of hugely added expense.
The phenomenon of bunching happens in many areas beyond housing. Around the world, it affects sales prices, companies’ number of employees, stock issuance, and even the size of fishing boats.
The proper lesson for policymakers is that rules should be applied generally, absent cutoffs or special thresholds. Sometimes this principle cuts against deregulatory efforts that seek to carve out smaller companies from burdensome rules. A superior approach would be that, if a given regulation is too costly for many targeted businesses to follow, perhaps it should be repealed entirely.