The Determinants Of The Quality Of New Housing Supply

The quality of newly constructed housing affects the character and possibly the future prosperity of locations for decades. Arguably, the quality of housing also causes externalities to residents in surrounding areas. Given the seeming importance of housing quality it is surprising how little is known about its determinants. In this paper we fill this gap by providing a theoretical framework and by exploiting 26 metro area American Housing Survey (AHS) datasets to identify the determinants of the quality of new housing supply. The basic idea is that circumstances under which a house was built affect its quality. Since housing is an extremely durable good, this has implications for the housing stock quality for many years. We use this fundamental characteristic of housing to first assess changes in housing quality over time for a large number of metro areas in the United States. We then investigate the effect of local demand conditions on the quality of n ewly constructed housing, hypothesising that housing quality improves with prosperity and deteriorates during downturns. Stylized facts for the Netherlands and a preliminary analysis for the United States provide tentative support for this proposition. Local supply conditions are analysed by considering indices of the restrictiveness of land use regulation at the metropolitan level, and by comparing new construction in suburbs to residential development in city centres, where land is relatively scarce.