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On Local Housing Supply Elasticity

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  • Albert Saiz

Abstract

Housing markets have been established as fundamental to our understanding of business cycles, labor mobility, household wealth accumulation, portfolio allocation, and urban dynamics. Housing supply is a key element to explain housing price levels and fluctuations and recent literature argues about the extent to which residential land regulations drive housing price changes. However, research has failed to treat regulation as endogenous to the housing market equilibrium, and to local attributes that have an independent impact on housing supply. In this paper I use new US data about the local extent of restrictive housing development regulations and a wealth of institutional and demographic variables for the metropolitan areas of the United States. I give empirical content to the concept o land availability by processing satellite-generated data on elevation and presence of water bodies to precisely estimate the amount of developable land in each metro area . I demonstrate that development is effectively curtailed by the presence of slopes above 15% and that most areas that are widely regarded as supply-inelastic are, in fact, severely land-constrained by their topography. Furthermore, the extent of topographical constraints correlates positively ands strongly with regulatory barriers to development. I estimate a system of equations where housing prices, construction, and regulations are all determined endogenously. Housing supply elasticities can be wellcharacterized as functions of both physical and regulatory constraints, which in turn are endogenous to prices and past growth. The results provide operational estimates of local supply elasticities in all major US metropolitan areas.

Suggested Citation

  • Albert Saiz, 2008. "On Local Housing Supply Elasticity," ERES eres2008_241, European Real Estate Society (ERES).
  • Handle: RePEc:arz:wpaper:eres2008_241
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    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2008-241
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    Cited by:

    1. Osei, Michael J. & Winters, John V., 2018. "Labor Demand Shocks and Housing Prices across the US: Does One Size Fit All?," IZA Discussion Papers 11636, Institute for the Study of Labor (IZA).
    2. Dettling, Lisa J. & Kearney, Melissa S., 2014. "House prices and birth rates: The impact of the real estate market on the decision to have a baby," Journal of Public Economics, Elsevier, vol. 110(C), pages 82-100.
    3. Duca, John V. & Muellbauer, John & Murphy, Anthony, 2010. "Housing markets and the financial crisis of 2007-2009: Lessons for the future," Journal of Financial Stability, Elsevier, vol. 6(4), pages 203-217, December.
    4. Andrew Haughwout & Richard W. Peach & John Sporn & Joseph Tracy, 2012. "The Supply Side of the Housing Boom and Bust of the 2000s," NBER Chapters,in: Housing and the Financial Crisis, pages 69-104 National Bureau of Economic Research, Inc.
    5. Hilber, Christian A.L., 2010. "New housing supply and the dilution of social capital," Journal of Urban Economics, Elsevier, vol. 67(3), pages 419-437, May.
    6. Hilber, Christian A.L. & Robert-Nicoud, Frédéric, 2013. "On the origins of land use regulations: Theory and evidence from US metro areas," Journal of Urban Economics, Elsevier, vol. 75(C), pages 29-43.
    7. Nadauld, Taylor D. & Sherlund, Shane M., 2013. "The impact of securitization on the expansion of subprime credit," Journal of Financial Economics, Elsevier, vol. 107(2), pages 454-476.
    8. Glaeser, Edward L. & Gyourko, Joseph & Saiz, Albert, 2008. "Housing supply and housing bubbles," Journal of Urban Economics, Elsevier, vol. 64(2), pages 198-217, September.
    9. 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.
    10. Atif Mian & Amir Sufi, 2011. "House Prices, Home Equity-Based Borrowing, and the US Household Leverage Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 2132-2156, August.
    11. Eli Beracha & Hilla Skiba, 2013. "Findings from a Cross-Sectional Housing Risk-Factor Model," The Journal of Real Estate Finance and Economics, Springer, vol. 47(2), pages 289-309, August.
    12. Cenkhan Sahin, 2016. "Macroeconomic effects of mortgage interest deduction," DNB Working Papers 514, Netherlands Central Bank, Research Department.
    13. Vermeulen, Wouter & van Ommeren, Jos, 2009. "Does land use planning shape regional economies? A simultaneous analysis of housing supply, internal migration and local employment growth in the Netherlands," Journal of Housing Economics, Elsevier, vol. 18(4), pages 294-310, December.
    14. Todd Sinai, 2010. "Feedback Between Real Estate And Urban Economics," Journal of Regional Science, Wiley Blackwell, vol. 50(1), pages 423-448.
    15. Chan, Sewin & Haughwout, Andrew & Tracy, Joseph, 2015. "How Mortgage Finance Affects the Urban Landscape," Handbook of Regional and Urban Economics, Elsevier.
    16. Ball, Michael & Meen, Geoffrey & Nygaard, Christian, 2010. "Housing supply price elasticities revisited: Evidence from international, national, local and company data," Journal of Housing Economics, Elsevier, vol. 19(4), pages 255-268, December.
    17. Davidoff, Thomas, 2010. "What explains Manhattan's declining share of residential construction?," Journal of Public Economics, Elsevier, vol. 94(7-8), pages 508-514, August.
    18. repec:kap:jrefec:v:56:y:2018:i:2:d:10.1007_s11146-017-9598-z is not listed on IDEAS
    19. Byron F. Lutz, 2009. "Fiscal amenities, school finance reform and the supply side of the Tiebout market," Finance and Economics Discussion Series 2009-18, Board of Governors of the Federal Reserve System (U.S.).
    20. Richard T. Carson & Samuel R. Dastrup, 2013. "After The Fall: An Ex Post Characterization Of Housing Price Declines Across Metropolitan Areas," Contemporary Economic Policy, Western Economic Association International, vol. 31(1), pages 22-43, January.

    More about this item

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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