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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
Date of revision:
Handle: RePEc:cep:sercdp:0119
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  11. Christian A. L. Hilber & Frédéric Robert-Nicoud, 2010. "On the origins of land use regulations: theory and evidence from us metro areas," Working Papers 2010/33, Institut d'Economia de Barcelona (IEB).
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  21. 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.
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  26. 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.
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  29. Albert Saiz, 2010. "The Geographic Determinants of Housing Supply," The Quarterly Journal of Economics, Oxford University Press, vol. 125(3), pages 1253-1296.
  30. 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.
  31. G Bramley, 1998. "Measuring Planning: Indicators of Planning Restraint and its Impact on Housing Land Supply," Environment and Planning B, SAGE Publishing, vol. 25(1), pages 31-57, February.
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