3 - The Supply of Housing

Abstract

This chapter presents an economic analysis of the supply side of the housing market. Housing services are produced using housing stock, labor, and other inputs such as electricity and heating fuel. The producers of housing services are an extremely diverse group ranging from owner-occupiers who produce services using stock that they rent from themselves, to small landlords who live on the ground floor of a building and rent out the top floor, and to companies owning a large number of rental buildings and whose shares are publicly traded on the stock exchange. The producers differ widely in their skills at combining inputs to produce services. The process of producing housing stock is lengthy, involving a complex phasing of inputs and extensive interaction with government ministries and agencies. Most firms constructing a large number of dwelling units have integrated back into the land market to acquire new land and hold it as inventory. The purchasers of housing stock are the producers of housing services—owner-occupiers, landlords, or perhaps a division of the building. The supply of new housing stock is extremely sensitive to mortgage interest rates, and it is subject to great variations across the business cycle.