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Does Political Uncertainty Affect Residential Development?

Author

Listed:
  • Shikong Luo

    (The University of Oklahoma)

  • Alan Tidwell

    (The University of Alabama)

  • Sherwood Clements

    (The University of Alabama)

Abstract

This study examines the link between policy uncertainty and residential construction activities in the United States. Using a newly developed measure of political uncertainty, we find quarterly flow of state-level building permits to be negatively associated with aggregate political uncertainty. The negative impact of political uncertainty is more pronounced in states where the debt-to-income ratio or local economic variability is high. We also use gubernatorial elections as a plausible exogenous variation in political uncertainty. Compared to states without an upcoming gubernatorial election, we document a sharp decline in residential construction for states in the pre-election quarter when the state-specific political uncertainty is particularly high. These results suggest a non-negligible role of political uncertainty in residential construction activity.

Suggested Citation

  • Shikong Luo & Alan Tidwell & Sherwood Clements, 2022. "Does Political Uncertainty Affect Residential Development?," The Journal of Real Estate Finance and Economics, Springer, vol. 65(4), pages 572-592, November.
    • Handle: RePEc:kap:jrefec:v:65:y:2022:i:4:d:10.1007_s11146-021-09867-9
    DOI: 10.1007/s11146-021-09867-9
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