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Regional housing supply and credit constraints

Author

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  • Christopher J. Mayer
  • C. Tsuriel Somerville

Abstract

The construction of new housing plays a critical role in the economy, yet it is understudied by researchers. Increases in housing starts raise construction employment, and recent home buyers often purchase other consumer durables, leading through the multiplier effect to increased employment. Construction is especially important to the business cycle, because changes in residential construction tend to lead recessions and recovery.> Despite its importance, empirical research on housing supply is surprisingly rare. This article presents a new empirical model of housing supply that reflects the land development process and is consistent with the time-series characteristics of the data. The authors apply this model to the four U.S. Census regions and estimate regional housing start elasticities, which range between 0.9 and 3.9. Their estimates also show a prolonged period of below-predicted construction in the Northeast during the early 1990s that does not appear during the downturns in other regions. These results are consistent with the hypothesis that a severe negative shock to local asset values (and thus bank capital), possibly combined with changes in banking regulation, let to a "credit crunch" that reduced new housing construction.

Suggested Citation

  • Christopher J. Mayer & C. Tsuriel Somerville, 1996. "Regional housing supply and credit constraints," New England Economic Review, Federal Reserve Bank of Boston, issue Nov, pages 39-51.
  • Handle: RePEc:fip:fedbne:y:1996:i:nov:p:39-51
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    Citations

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    Cited by:

    1. James McGibany & Farrokh Nourzad, 2004. "Do lower mortgage rates mean higher housing prices?," Applied Economics, Taylor & Francis Journals, vol. 36(4), pages 305-313.
    2. Markus K. Brunnermeier & Christian Julliard, 2008. "Money Illusion and Housing Frenzies," Review of Financial Studies, Society for Financial Studies, vol. 21(1), pages 135-180, January.
    3. Mayer, Christopher J. & Somerville, C. Tsuriel, 2000. "Land use regulation and new construction," Regional Science and Urban Economics, Elsevier, vol. 30(6), pages 639-662, December.
    4. Robert Edelstein & Desmond Tsang, 2007. "Dynamic Residential Housing Cycles Analysis," The Journal of Real Estate Finance and Economics, Springer, vol. 35(3), pages 295-313, October.
    5. Malpezzi, Stephen & Maclennan, Duncan, 2001. "The Long-Run Price Elasticity of Supply of New Residential Construction in the United States and the United Kingdom," Journal of Housing Economics, Elsevier, vol. 10(3), pages 278-306, September.
    6. 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.
    7. Mayer, Christopher J. & Somerville, C. Tsuriel, 2000. "Residential Construction: Using the Urban Growth Model to Estimate Housing Supply," Journal of Urban Economics, Elsevier, vol. 48(1), pages 85-109, July.
    8. Arthur Grimes & Andrew Aitken, 2006. "Housing Supply and Price Adjustment," Working Papers 06_01, Motu Economic and Public Policy Research.
    9. Lozano Navarro, Francisco-Javier, 2015. "Elasticidad precio de la oferta inmobiliaria en el Gran Santiago
      [Housing supply elasticity in Greater Santiago]
      ," MPRA Paper 65012, University Library of Munich, Germany.
    10. Christopher J. Mayer & C. Tsuriel Somerville, 1996. "Unifying empirical and theoretical models of housing supply," Working Papers 96-12, Federal Reserve Bank of Boston.
    11. Brent W. Ambrose & Joe Peek, 2008. "Credit Availability and the Structure of the Homebuilding Industry," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 36(4), pages 659-692, December.

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    Keywords

    Housing;

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