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Supply Constraints and Land Prices in Growing Cities: The Role of Agglomeration Economies

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  • Burcu Eyigungor

    (Federal Reserve Bank of Philadelphia)

  • Satyajit Chatterjee

    (Federal Reserve Bank of Philadelphia)

Abstract

What implications does land supply elasticity have for land price appreciation in cities that are experiencing population or productivity growth? In the setting of a circular city model with a production externality, we show that residential land prices grow faster in the city that can expand more easily (i.e., has a higher land price elasticity), if the production externality is high enough. This result is opposite of what would be predicted if production externalities are ignored and provides one possible explanation for the observed weak correlation between land supply elasticities and house price appreciation.

Suggested Citation

  • Burcu Eyigungor & Satyajit Chatterjee, 2012. "Supply Constraints and Land Prices in Growing Cities: The Role of Agglomeration Economies," 2012 Meeting Papers 1124, Society for Economic Dynamics.
  • Handle: RePEc:red:sed012:1124
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