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The Effect of Land Supply for New Homes on Residential Investment and House Prices

In: Measurement of Housing and the Housing Sector

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Listed:
  • Justin Katz
  • Paul S. Willen

Abstract

We use parcel-level data to provide new facts on the amount and distribution of land available for residential development, focusing on New England housing markets from 2007 to 2021. Most buildable parcels are small, and large buildable parcels are scarce in most geographic markets. Large buildable parcels are less available in more populous markets, become scarcer as populations grow, and have become scarcer over time. Markets with fewer large parcels experience higher house price growth and residential development that is lower relative to house price growth. We present evidence consistent with developer returns to scale in parcel size, meaning that fragmentation of buildable land across small, disjoint parcels increases house prices by reducing construction productivity and making development less responsive to demand. In counterfactual simulations from a simple calibrated model, we show that recombining small buildable parcels into larger ones while holding the total amount of buildable land fixed would increase supply, increase construction productivity, and slow house price growth.
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Suggested Citation

  • Justin Katz & Paul S. Willen, 2026. "The Effect of Land Supply for New Homes on Residential Investment and House Prices," NBER Chapters, in: Measurement of Housing and the Housing Sector, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:15403
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    References listed on IDEAS

    as
    1. Joseph Gyourko & Leonardo D'Amico & Edward L. Glaeser & William Kerr & Giacomo A.M. Ponzetto, 2024. "Why Has Construction Productivity Stagnated? The Role of Land-Use Regulation," Working Papers 1467, Barcelona School of Economics.
    2. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(3), pages 1253-1296.
    3. Daniel Garcia & Raven S. Molloy, 2023. "Can Measurement Error Explain Slow Productivity Growth in Construction?," Finance and Economics Discussion Series 2023-052, Board of Governors of the Federal Reserve System (U.S.).
    4. Austan Goolsbee & Chad Syverson, 2022. "The Strange and Awful Path of Productivity in the US Construction Sector," NBER Chapters, in: Technology, Productivity, and Economic Growth, pages 119-138, National Bureau of Economic Research, Inc.
    5. Nathaniel Baum-Snow & Lu Han, 2024. "The Microgeography of Housing Supply," Journal of Political Economy, University of Chicago Press, vol. 132(6), pages 1897-1946.
    6. Martin Neil Baily & Robert M. Solow, 2001. "International Productivity Comparisons Built from the Firm Level," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 151-172, Summer.
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    8. Edward Glaeser & Joseph Gyourko, 2018. "The Economic Implications of Housing Supply," Journal of Economic Perspectives, American Economic Association, vol. 32(1), pages 3-30, Winter.
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    More about this item

    JEL classification:

    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R52 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Land Use and Other Regulations
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns

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