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The impact of supply constraints on house prices in England

Listed author(s):
  • 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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File URL: http://eprints.lse.ac.uk/59254/
File Function: Open access version.
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 59254.

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Length: 51 pages
Date of creation: Sep 2012
Handle: RePEc:ehl:lserod:59254
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