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Housing Supply and Price Adjustment

Author

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  • Arthur Grimes

    () (Motu Economic and Public Policy)

  • Andrew Aitken

    () (Motu Economic and Public Policy)

Abstract

We analyse two inter-related features of regional housing markets: determinants of new housing supply, and the impact of supply responsiveness on price dynamics. We demonstrate that a suitably specified q-theory model (including residential land values as well as construction costs) explains intended housing starts. Few prior studies have found significant land price effects, due either to their omission or (possibly) to incorrect data definition (use of agricultural rather than residential land values). We examine the interaction of supply responsiveness and price adjustment following demand shocks, using a new panel dataset covering 53 quarters across 73 regions of New Zealand. Regions with high supply responsiveness have relatively small price spikes following demand shocks, consistent with a rational response that limits house price jumps in regions with strong supply responses.

Suggested Citation

  • Arthur Grimes & Andrew Aitken, 2006. "Housing Supply and Price Adjustment," Working Papers 06_01, Motu Economic and Public Policy Research.
  • Handle: RePEc:mtu:wpaper:06_01
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Elizabeth Steiner, 2010. "Estimating a Stock-Flow Model for the Swiss Housing Market," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 146(III), pages 601-627, September.
    2. Andrew Coleman & Grant Scobie, 2009. "A Simple Model of Housing Rental and Ownership with Policy Simulations," Working Papers 09_08, Motu Economic and Public Policy Research.

    More about this item

    Keywords

    Housing supply; q-theory; house price dynamics;

    JEL classification:

    • 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
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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