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The Impact of Supply Constraints on House Prices in England

  • Christian A. L. Hilber
  • Wouter Vermeulen

i) This discussion paper, originally published September 2012, is a completely revised version from April 2014. We model the impact of local supply constraints on local house prices in a setting in which households with idiosyncratic tastes sort endogenously over heterogeneous locations. We test the theoretical prediction that house prices respond more strongly to changes in local earnings in places with tight supply constraints using a unique panel dataset of 353 local planning authorities in England ranging from 1974 to 2008. Exploiting exogenous variation from a policy reform, vote shares and historical density to identify the endogenous constraints-measures, we find that: i) Regulatory constraints have a substantive positive impact on the house price-earnings elasticity; ii) The effect of constraints due to scarcity of developable land is largely confined to highly urbanised areas; iii) Uneven topography has a quantitatively less meaningful impact; iv) The effects of supply constraints are greater during boom than bust periods; and v) Our findings are robust to using a labour demand shock measure as demand shifter.

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Paper provided by Spatial Economics Research Centre, LSE in its series SERC Discussion Papers with number 0119.

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Date of creation: Sep 2012
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Handle: RePEc:cep:sercdp:0119
Contact details of provider: Web page: http://www.spatialeconomics.ac.uk/SERC/publications/default.asp

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  1. Saku Aura & Thomas Davidoff, 2006. "Supply Constraints and Housing Prices," Working Papers 0607, Department of Economics, University of Missouri.
  2. Hilber, Christian A. L., 2007. "New Housing Supply and the Dilution of Social Capital," MPRA Paper 5134, University Library of Munich, Germany.
  3. Harter-Dreiman, Michelle, 2004. "Drawing inferences about housing supply elasticity from house price responses to income shocks," Journal of Urban Economics, Elsevier, vol. 55(2), pages 316-337, March.
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  5. Cheshire, Paul & Hilber, Christian, 2007. "Office Space Supply Restrictions in Britain: The Political Economy of Market Revenge," ERES eres2007_119, European Real Estate Society (ERES).
  6. Hilber, Christian A. L. & Robert-Nicoud, Frédéric, 2009. "On the origins of land use regulations: Theory and evidence from US metro areas," CEPR Discussion Papers 7604, C.E.P.R. Discussion Papers.
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  10. Raffaella Sadun, 2008. "Does Planning Regulation Protect Independent Retailers?," CEP Discussion Papers dp0888, Centre for Economic Performance, LSE.
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  15. Quigley, John M. & Raphael, Steven, 2006. "Regulation and the High Cost of Housing in California," Berkeley Program on Housing and Urban Policy, Working Paper Series qt3hh7s35m, Berkeley Program on Housing and Urban Policy.
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  17. Glaeser, Edward L & Gyourko, Joseph & Saks, Raven, 2005. "Why Is Manhattan So Expensive? Regulation and the Rise in Housing Prices," Journal of Law and Economics, University of Chicago Press, vol. 48(2), pages 331-69, October.
  18. Glaeser, Edward L. & Ward, Bryce A., 2009. "The causes and consequences of land use regulation: Evidence from Greater Boston," Journal of Urban Economics, Elsevier, vol. 65(3), pages 265-278, May.
  19. Nobuhiro Kiyotaki & Alexander Michaelides & Kalin Nikolov, 2011. "Winners and Losers in Housing Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43, pages 255-296, 03.
  20. Christian A. L. Hilber & Christopher J. Mayer, 2002. "Why do households without children support local public schools? linking house price capitalization to school spending," Working Papers 02-10, Federal Reserve Bank of Philadelphia.
  21. Muellbauer, John & Murphy, Anthony, 1997. "Booms and Busts in the UK Housing Market," CEPR Discussion Papers 1615, C.E.P.R. Discussion Papers.
  22. Cameron, Gavin & Muellbauer, John & Murphy, Anthony, 2006. "Was There a British House Price Bubble? Evidence from a Regional Panel," CEPR Discussion Papers 5619, C.E.P.R. Discussion Papers.
  23. Tracy M. Turner, 2003. "Does Investment Risk Affect the Housing Decisions of Families?," Economic Inquiry, Western Economic Association International, vol. 41(4), pages 675-691, October.
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  25. Patrick Bayer & Fernando Ferreira & Robert McMillan, 2007. "A Unified Framework for Measuring Preferences for Schools and Neighborhoods," Journal of Political Economy, University of Chicago Press, vol. 115(4), pages 588-638, 08.
  26. Glaeser, Edward & Saiz, Albert & Gyourko, Joseph, 2008. "Housing Supply and Housing Bubbles," Scholarly Articles 2962640, Harvard University Department of Economics.
  27. Richard K. Green & Stephen Malpezzi & Stephen K. Mayo, 2005. "Metropolitan-Specific Estimates of the Price Elasticity of Supply of Housing, and Their Sources," American Economic Review, American Economic Association, vol. 95(2), pages 334-339, May.
  28. Christian A. L. Hilber & Christopher J. Mayer, 2004. "Why Do Households Without Children Support Local Public Schools?," NBER Working Papers 10804, National Bureau of Economic Research, Inc.
  29. Todd Sinai & Nicholas Souleles, 2013. "Can Owning a Home Hedge the Risk of Moving?," American Economic Journal: Economic Policy, American Economic Association, vol. 5(2), pages 282-312, May.
  30. Edward L. Glaeser & Joseph Gyourko, 2003. "The impact of building restrictions on housing affordability," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 21-39.
  31. Paciorek, Andrew, 2013. "Supply constraints and housing market dynamics," Journal of Urban Economics, Elsevier, vol. 77(C), pages 11-26.
  32. G Bramley, 1998. "Measuring planning: indicators of planning restraint and its impact on housing land supply," Environment and Planning B: Planning and Design, Pion Ltd, London, vol. 25(1), pages 31-57, January.
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