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The Production Function for Housing: Evidence from France

Author

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  • Pierre-Philippe Combes

    (Université de Lyon, ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • Gilles Duranton

    (Department of Economics, Harvard University)

  • Laurent Gobillon

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CEPR - Center for Economic Policy Research, PSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique)

Abstract

We propose a new nonparametric approach to estimate the production function for housing. Our estimation treats output as a latent variable and relies on the firstorder condition for profit maximisation with respect to nonland inputs by competitive house builders. For parcels of a given size, we compute housing by summing across the marginal products of nonland inputs. Differences in nonland inputs are caused by differences in land prices that reflect differences in the demand for housing across locations. We implement our methodology on newlybuilt singlefamily homes in France. We find that the production function for housing is reasonably well, though not perfectly, approximated by a CobbDouglas function and close to constant returns. After correcting for differences in user costs between land and nonland inputs and taking care of some estimation concerns, we estimate an elasticity of housing production with respect to nonland inputs of about 0.80.

Suggested Citation

  • Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2016. "The Production Function for Housing: Evidence from France," PSE Working Papers halshs-01400852, HAL.
    • Handle: RePEc:hal:psewpa:halshs-01400852
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01400852v1
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    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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