IDEAS home Printed from https://ideas.repec.org/p/ehl/lserod/118645.html
   My bibliography  Save this paper

Secondary housing supply

Author

Listed:
  • Mense, Andreas

Abstract

I estimate the impact of new housing supply on the local rent distribution, exploiting delays in housing completions caused by weather shocks during the construction phase. Increasing the flow of new supply by 1% lowers average rents by 0.2%, and increases disproportionately the number of second-hand units offered for rent. The supply shock affects the entire rent distribution. Employing a quantitative model, I explain this pattern by secondary supply: New supply triggers a cascade of moves that frees up units in all segments of the local market. The impact on rents is similarly strong in locations experiencing growing housing demand.

Suggested Citation

  • Mense, Andreas, 2023. "Secondary housing supply," LSE Research Online Documents on Economics 118645, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:118645
    as

    Download full text from publisher

    File URL: http://eprints.lse.ac.uk/118645/
    File Function: Open access version.
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Martin Gornig & Claus Michelsen & Martin Bruns, 2019. "Bauwirtschaft weiter im Vorwärtsgang – staatliche Impulse treiben die Preise," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 86(1/2), pages 3-14.
    2. John Kennan & James R. Walker, 2011. "The Effect of Expected Income on Individual Migration Decisions," Econometrica, Econometric Society, vol. 79(1), pages 211-251, January.
    3. Jack Favilukis & Sydney C. Ludvigson & Stijn Van Nieuwerburgh, 2017. "The Macroeconomic Effects of Housing Wealth, Housing Finance, and Limited Risk Sharing in General Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 125(1), pages 140-223.
    4. Florian Oswald, 2019. "The effect of homeownership on the option value of regional migration," Quantitative Economics, Econometric Society, vol. 10(4), pages 1453-1493, November.
    5. Justin P. Johnson, 2011. "Secondary markets with changing preferences," RAND Journal of Economics, RAND Corporation, vol. 42(3), pages 555-574, September.
    6. 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.
    7. Tim Landvoigt & Monika Piazzesi & Martin Schneider, 2015. "The Housing Market(s) of San Diego," American Economic Review, American Economic Association, vol. 105(4), pages 1371-1407, April.
    8. Rebecca Diamond & Tim McQuade & Franklin Qian, 2019. "The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco," American Economic Review, American Economic Association, vol. 109(9), pages 3365-3394, September.
    9. V. Joseph Hotz & Robert A. Miller, 1993. "Conditional Choice Probabilities and the Estimation of Dynamic Models," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(3), pages 497-529.
    10. Monika Piazzesi & Martin Schneider & Johannes Stroebel, 2020. "Segmented Housing Search," American Economic Review, American Economic Association, vol. 110(3), pages 720-759, March.
    11. François Ortalo-Magné & Sven Rady, 2006. "Housing Market Dynamics: On the Contribution of Income Shocks and Credit Constraints ," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(2), pages 459-485.
    12. Sweeney, James L., 1974. "A commodity hierarchy model of the rental housing market," Journal of Urban Economics, Elsevier, vol. 1(3), pages 288-323, July.
    13. Evan Mast, 2019. "The Effect of New Market-Rate Housing Construction on the Low-Income Housing Market," Upjohn Working Papers 19-307, W.E. Upjohn Institute for Employment Research.
    14. Edward L. Glaeser & Joseph Gyourko & Raven E. Saks, 2005. "Why Have Housing Prices Gone Up?," American Economic Review, American Economic Association, vol. 95(2), pages 329-333, May.
    15. Joseph Gyourko & Christopher Mayer & Todd Sinai, 2013. "Superstar Cities," American Economic Journal: Economic Policy, American Economic Association, vol. 5(4), pages 167-199, November.
    16. Christian A. L. Hilber & Wouter Vermeulen, 2016. "The Impact of Supply Constraints on House Prices in England," Economic Journal, Royal Economic Society, vol. 126(591), pages 358-405, March.
    17. Hilber, Christian Albin Lukas & Mense, Andreas, 2021. "Why have house prices risen so much more than rents in superstar cities?," LSE Research Online Documents on Economics 114283, London School of Economics and Political Science, LSE Library.
    18. Moshe Buchinsky & Chemi Gotlibovski & Osnat Lifshitz, 2014. "Residential Location, Work Location, and Labor Market Outcomes of Immigrants in Israel," Econometrica, Econometric Society, vol. 82(3), pages 995-1054, May.
    19. Adriano A. Rampini, 2019. "Financing Durable Assets," American Economic Review, American Economic Association, vol. 109(2), pages 664-701, February.
    20. Greg Kaplan & Kurt Mitman & Giovanni L. Violante, 2020. "The Housing Boom and Bust: Model Meets Evidence," Journal of Political Economy, University of Chicago Press, vol. 128(9), pages 3285-3345.
    21. Peter Arcidiacono & Robert A. Miller, 2011. "Conditional Choice Probability Estimation of Dynamic Discrete Choice Models With Unobserved Heterogeneity," Econometrica, Econometric Society, vol. 79(6), pages 1823-1867, November.
    22. Saks, Raven E., 2008. "Job creation and housing construction: Constraints on metropolitan area employment growth," Journal of Urban Economics, Elsevier, vol. 64(1), pages 178-195, July.
    23. Michael Waldman, 2003. "Durable Goods Theory for Real World Markets," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 131-154, Winter.
    24. Fergus, James T, 1999. "Where, When, and by How Much Does Abnormal Weather Affect Housing Construction?," The Journal of Real Estate Finance and Economics, Springer, vol. 18(1), pages 63-87, January.
    25. Benoît Schmutz & Modibo Sidibé, 2019. "Frictional Labour Mobility," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(4), pages 1779-1826.
    26. Gabriel Metcalf, 2018. "Sand Castles before the Tide? Affordable Housing in Expensive Cities," Journal of Economic Perspectives, American Economic Association, vol. 32(1), pages 59-80, Winter.
    27. Victor Chernozhukov & Christian Hansen, 2005. "An IV Model of Quantile Treatment Effects," Econometrica, Econometric Society, vol. 73(1), pages 245-261, January.
    28. N. Edward Coulson & Christian Richard, 1996. "The Dynamic Impact of Unseasonable Weather on Construction Activity," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 24(2), pages 179-194.
    29. John M. Quigley & Steven Raphael, 2005. "Regulation and the High Cost of Housing in California," American Economic Review, American Economic Association, vol. 95(2), pages 323-328, May.
    30. Raj Chetty & Nathaniel Hendren & Lawrence F. Katz, 2016. "The Effects of Exposure to Better Neighborhoods on Children: New Evidence from the Moving to Opportunity Experiment," American Economic Review, American Economic Association, vol. 106(4), pages 855-902, April.
    31. Stijn Van Nieuwerburgh & Pierre-Olivier Weill, 2010. "Why Has House Price Dispersion Gone Up?," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(4), pages 1567-1606.
    32. Stuart S. Rosenthal, 2014. "Are Private Markets and Filtering a Viable Source of Low-Income Housing? Estimates from a "Repeat Income" Model," American Economic Review, American Economic Association, vol. 104(2), pages 687-706, February.
    33. Dennis Epple & Luis Quintero & Holger Sieg, 2020. "A New Approach to Estimating Equilibrium Models for Metropolitan Housing Markets," Journal of Political Economy, University of Chicago Press, vol. 128(3), pages 948-983.
    34. Patrick Bayer & Robert McMillan & Alvin Murphy & Christopher Timmins, 2016. "A Dynamic Model of Demand for Houses and Neighborhoods," Econometrica, Econometric Society, vol. 84, pages 893-942, May.
    35. Chernozhukov, Victor & Hansen, Christian, 2008. "Instrumental variable quantile regression: A robust inference approach," Journal of Econometrics, Elsevier, vol. 142(1), pages 379-398, January.
    36. Charles Nathanson, 2019. "Trickle-Down Housing Economics," 2019 Meeting Papers 537, Society for Economic Dynamics.
    37. Jiawei Chen & Susanna Esteban & Matthew Shum, 2013. "When Do Secondary Markets Harm Firms?," American Economic Review, American Economic Association, vol. 103(7), pages 2911-2934, December.
    38. Raven S. Molloy & Charles G. Nathanson & Andrew D. Paciorek, 2020. "Housing Supply and Affordability: Evidence from Rents, Housing Consumption and Household Location," Finance and Economics Discussion Series 2020-044, Board of Governors of the Federal Reserve System (U.S.).
    39. Büchler, Simon & Ehrlich, Maximilian v. & Schöni, Olivier, 2021. "The amplifying effect of capitalization rates on housing supply," Journal of Urban Economics, Elsevier, vol. 126(C).
    40. Chernozhukov, Victor & Hansen, Christian, 2006. "Instrumental quantile regression inference for structural and treatment effect models," Journal of Econometrics, Elsevier, vol. 132(2), pages 491-525, June.
    41. Sweeney, James L, 1974. "Quality, Commodity Hierarchies, and Housing Markets," Econometrica, Econometric Society, vol. 42(1), pages 147-167, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Stephan Brunow & Ramona Jost, 2023. "Being a long distance out-commuter or home employee in a rather peripheral region evidence of a German federal state," Review of Regional Research: Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 43(2), pages 317-342, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mense, Andreas, 2020. "The Impact of New Housing Supply on the Distribution of Rents," VfS Annual Conference 2020 (Virtual Conference): Gender Economics 224569, Verein für Socialpolitik / German Economic Association.
    2. Howard, Greg & Liebersohn, Jack, 2021. "Why is the rent so darn high? The role of growing demand to live in housing-supply-inelastic cities," Journal of Urban Economics, Elsevier, vol. 124(C).
    3. Christian A. L. Hilber & Olivier Schoni, 2022. "Housing policy and affordable housing," CEP Occasional Papers 56, Centre for Economic Performance, LSE.
    4. Ganong, Peter & Shoag, Daniel, 2017. "Why has regional income convergence in the U.S. declined?," Journal of Urban Economics, Elsevier, vol. 102(C), pages 76-90.
    5. Divya Singh, 2020. "Do Property Tax Incentives for New Construction Spur Gentrification? Evidence from New York City," 2020 Papers psi856, Job Market Papers.
    6. Christian A. L. Hilber, 2017. "The Economic Implications of House Price Capitalization: A Synthesis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 45(2), pages 301-339, April.
    7. David Christafore & Susane Leguizamon, 2015. "Spatial Spillovers of Land Use Regulation in the United States," Housing Studies, Taylor & Francis Journals, vol. 30(3), pages 491-503, June.
    8. Paciorek, Andrew, 2013. "Supply constraints and housing market dynamics," Journal of Urban Economics, Elsevier, vol. 77(C), pages 11-26.
    9. Rosenthal, Stuart S. & Ross, Stephen L., 2015. "Change and Persistence in the Economic Status of Neighborhoods and Cities," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 1047-1120, Elsevier.
    10. Brian Asquith & Evan Mast & Davin Reed, 2019. "Supply Shock Versus Demand Shock: The Local Effects of New Housing in Low-Income Areas," Upjohn Working Papers 19-316, W.E. Upjohn Institute for Employment Research.
    11. Molloy, Raven & Nathanson, Charles G. & Paciorek, Andrew, 2022. "Housing supply and affordability: Evidence from rents, housing consumption and household location," Journal of Urban Economics, Elsevier, vol. 129(C).
    12. Gyourko, Joseph & Molloy, Raven, 2015. "Regulation and Housing Supply," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 1289-1337, Elsevier.
    13. Hilber, Christian Albin Lukas & Mense, Andreas, 2021. "Why have house prices risen so much more than rents in superstar cities?," LSE Research Online Documents on Economics 114283, London School of Economics and Political Science, LSE Library.
    14. Evan Mast, 2019. "The Effect of New Market-Rate Housing Construction on the Low-Income Housing Market," Upjohn Working Papers 19-307, W.E. Upjohn Institute for Employment Research.
    15. Christian A. L. Hilber, 2019. "Immobilienpreise und Immobilienzyklen und die Rolle von Angebotsbeschränkungen [The impact of local supply constraints on house prices and price dynamics]," Zeitschrift für Immobilienökonomie (German Journal of Real Estate Research), Springer;Gesellschaft für Immobilienwirtschaftliche Forschung e. V., vol. 5(1), pages 37-65, November.
    16. H. Spencer Banzhaf & Kyle Mangum, 2019. "Capitalization as a Two-Part Tariff: The Role of Zoning," NBER Working Papers 25699, National Bureau of Economic Research, Inc.
    17. Antonia Díaz & Belén Jerez & Juan Pablo Rincón-Zapatero, 2024. "Housing Prices and Credit Constraints in Competitive Search," The Economic Journal, Royal Economic Society, vol. 134(657), pages 220-270.
    18. 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.
    19. Piazzesi, M. & Schneider, M., 2016. "Housing and Macroeconomics," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 1547-1640, Elsevier.
    20. Christian A. L. Hilber & Wouter Vermeulen, 2016. "The Impact of Supply Constraints on House Prices in England," Economic Journal, Royal Economic Society, vol. 126(591), pages 358-405, March.

    More about this item

    Keywords

    housing supply; rental housing; rent distribution; secondary markets; market integration;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ehl:lserod:118645. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: LSERO Manager (email available below). General contact details of provider: https://edirc.repec.org/data/lsepsuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.