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Housing Supply, Land Costs and Price Adjustment

  • Arthur Grimes
  • Andrew Aitken

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. Copyright (c) 2010 American Real Estate and Urban Economics Association.

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Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

Volume (Year): 38 (2010)
Issue (Month): 2 ()
Pages: 325-353

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Handle: RePEc:bla:reesec:v:38:y:2010:i:2:p:325-353
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