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Housing market dynamics with delays in the construction sector

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  • Bahadir, Berrak
  • Mykhaylova, Olena

Abstract

Housing supply is subject to several types of delays. On average, it takes 6months to get approved for a residential building permit and another 2–4 quarters to complete a construction project. We present a simple two-sector model that incorporates these observations and show that the effect of these delays is not uniform: while they amplify the response of house prices to demand shocks, they dampen the effects of housing supply shocks. Moreover, construction activity depends on the relative duration of the shocks and the construction delays: delays dampen construction booms following temporary shocks, but exaggerate building activity following permanent changes in demand or supply conditions. Our results highlight the importance of capturing the nature and the persistence of the shocks when studying the effects of construction sector delays on housing market dynamics.

Suggested Citation

  • Bahadir, Berrak & Mykhaylova, Olena, 2014. "Housing market dynamics with delays in the construction sector," Journal of Housing Economics, Elsevier, vol. 26(C), pages 94-108.
    • Handle: RePEc:eee:jhouse:v:26:y:2014:i:c:p:94-108
    DOI: 10.1016/j.jhe.2014.09.005
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    Cited by:

    1. Brausewetter, Lars & Thomsen, Stephan L. & Trunzer, Johannes, 2022. "Explaining regional disparities in housing prices across German districts," IWH Discussion Papers 13/2022, Halle Institute for Economic Research (IWH).
    2. Ma, Le & Liu, Henry J. & Edwards, David J. & Sing, Michael C.P., 2021. "Housing price dynamics on residential construction: A case study of the Australian property sector," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 525-532.
    3. Benjamin Patrick Evans & Kirill Glavatskiy & Michael S. Harré & Mikhail Prokopenko, 2023. "The impact of social influence in Australian real estate: market forecasting with a spatial agent-based model," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 18(1), pages 5-57, January.
    4. Gary Wai Chung Wong & Lok Sang Ho, 2017. "Policy-Driven Housing Cycle: The Hong Kong Case of Supply Intervention," International Real Estate Review, Global Social Science Institute, vol. 20(3), pages 375-396.
    5. Gandhi, Sahil & Tandel, Vaidehi & Tabarrok, Alexander & Ravi, Shamika, 2021. "Too slow for the urban march: Litigations and the real estate market in Mumbai, India," Journal of Urban Economics, Elsevier, vol. 123(C).
    6. Cellmer Radosław & Jasiński Janusz, 2016. "Analysis of Housing Development Activity in Poland from 2005-2014," Real Estate Management and Valuation, Sciendo, vol. 24(4), pages 47-58, December.
    7. Benjamin Patrick Evans & Kirill Glavatskiy & Michael S. Harr'e & Mikhail Prokopenko, 2020. "The impact of social influence in Australian real-estate: market forecasting with a spatial agent-based model," Papers 2009.06914, arXiv.org, revised Feb 2021.

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    More about this item

    Keywords

    House prices; Building permits; Construction delays; Supply shocks;
    All these keywords.

    JEL classification:

    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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