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Modelling the Aggregate Effects of Housing Supply Policies

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  • Gabriele Guaitoli

    (Departament of Applied Economics, Universitat Autònoma de Barcelona, Spain)

Abstract

What are the aggregate effects of housing supply-side policies, such as zoning reforms? In structural models, the answer involves characterising the equilibrium housing price function. I show that a housing price function should separately characterise how policies affect: 1) the response of house prices to new demand ("Elasticity Effect''); 2) the cost of satisfying existing housing demand ("Baseline Effect''). While the former can be calibrated to match estimates of price-demand elasticities such as Saiz (2010), the latter requires a separate calibration. However, popular models in Urban Economics and Economic Geography do not separately characterise and calibrate the Baseline and Elasticity Effects, introducing potential biases in the estimation of long-run policy effects. I propose a characterisation that makes such biases explicit, nests most popular characterisations, and allows to separately characterise and estimate the two effects. Calibrating the Baseline Effect to conservative empirical estimates from the literature, I find housing supply policy effects up to one order of magnitude larger than other characterisations applied to the same model.

Suggested Citation

  • Gabriele Guaitoli, 2025. "Modelling the Aggregate Effects of Housing Supply Policies," Working Papers wpdea2516, Department of Applied Economics at Universitat Autonoma of Barcelona.
    • Handle: RePEc:uab:wprdea:wpdea2516
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    References listed on IDEAS

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    1. 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.
    2. Herkenhoff, Kyle F. & Ohanian, Lee E. & Prescott, Edward C., 2018. "Tarnishing the golden and empire states: Land-use restrictions and the U.S. economic slowdown," Journal of Monetary Economics, Elsevier, vol. 93(C), pages 89-109.
    3. Edward L. Glaeser & Joseph Gyourko, 2025. "America's Housing Supply Problem: The Closing of the Suburban Frontier?," NBER Working Papers 33876, National Bureau of Economic Research, Inc.
    4. Rebecca Diamond, 2017. "Housing Supply Elasticity and Rent Extraction by State and Local Governments," American Economic Journal: Economic Policy, American Economic Association, vol. 9(1), pages 74-111, February.
    5. Parkhomenko, Andrii, 2023. "Local causes and aggregate implications of land use regulation," Journal of Urban Economics, Elsevier, vol. 138(C).
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