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The amplifying effect of capitalization rates on housing supply

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  • Büchler, Simon
  • Ehrlich, Maximilian v.
  • Schöni, Olivier

Abstract

We provide empirical evidence that increases in housing rental income lead to a larger supply response than price increases of the same percentage value. We rationalize this differential in supply responsiveness with an amplification mechanism arising from a downward revision of capitalization rates following a rental income increase. We document that the amplification of the housing supply price elasticity is less pronounced in geographically constrained and tightly regulated neighborhoods and areas having more sophisticated investors. Our findings hold valuable lessons for public policies affecting the housing rental income, such as rent control and housing subsidies.

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  • Büchler, Simon & Ehrlich, Maximilian v. & Schöni, Olivier, 2021. "The amplifying effect of capitalization rates on housing supply," Journal of Urban Economics, Elsevier, vol. 126(C).
    • Handle: RePEc:eee:juecon:v:126:y:2021:i:c:s0094119021000528
    DOI: 10.1016/j.jue.2021.103370
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    Cited by:

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    2. Molloy, Raven & Nathanson, Charles G. & Paciorek, Andrew, 2022. "Housing supply and affordability: Evidence from rents, housing consumption and household location," Journal of Urban Economics, Elsevier, vol. 129(C).
    3. Fabienne Helfer & Volker Grossmann & Aderonke Osikominu, 2023. "How does immigration affect housing costs in Switzerland?," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 159(1), pages 1-31, December.
    4. Hilber, Christian A. L. & Mense, Andreas, 2021. "Why have house prices risen so much more than rents in superstar cities?," LSE Research Online Documents on Economics 112668, London School of Economics and Political Science, LSE Library.
    5. Guillaume Chapelle & J.B. Eyméoud & C. Wolf, 2023. "Land-use regulation and housing supply elasticity: evidence from France," THEMA Working Papers 2023-08, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    6. Ahlfeldt, Gabriel M. & Heblich, Stephan & Seidel, Tobias, 2023. "Micro-geographic property price and rent indices," Regional Science and Urban Economics, Elsevier, vol. 98(C).
    7. Simon B chler, Maximilian v. Ehrlich, 2021. "Quantifying Land Use Regulation and its Determinants - Ease of Residential Development across Swiss Municipalities," Diskussionsschriften credresearchpaper32, Universitaet Bern, Departement Volkswirtschaft - CRED.
    8. Mense, Andreas, 2021. "Secondary housing supply," FAU Discussion Papers in Economics 05/2021, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    9. Pradana, Adian Arya, 2023. "The Banker Kerja Keras dan Jeli Membangun Wirausaha Perbankan," OSF Preprints yb35q, Center for Open Science.

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    More about this item

    Keywords

    Housing supply; Capitalization rate; Land use regulation; Geographic constraints;
    All these keywords.

    JEL classification:

    • R - Urban, Rural, Regional, Real Estate, and Transportation Economics
    • R - Urban, Rural, Regional, Real Estate, and Transportation Economics
    • R - Urban, Rural, Regional, Real Estate, and Transportation Economics

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