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Housing Supply, Land Costs and Price Adjustment

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  • Arthur Grimes
  • Andrew Aitken

Abstract

We analyze relationships between housing supply elasticities, land costs and house price dynamics, contributing three main insights. First, higher housing supply elasticities help contain short‐run price spikes following demand shocks. Second, land price dynamics influence this relationship; supply responses are lessened and house price spikes are exacerbated as land prices increase. Third, we estimate a system of regional equations modeling housing supply using a Tobin's‐q specification (incorporating construction and land costs) and show that regional price dynamics are a function of the region's supply elasticity.

Suggested Citation

  • Arthur Grimes & Andrew Aitken, 2010. "Housing Supply, Land Costs and Price Adjustment," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 38(2), pages 325-353, June.
    • Handle: RePEc:bla:reesec:v:38:y:2010:i:2:p:325-353
    DOI: 10.1111/j.1540-6229.2010.00269.x
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