A New Determinant of Neighborhood Supply Elasticity: Ownership Constraints

Abstract

Supply elasticity measures how much supply will increase when the price rises. In the housing literature, it is well known that supply elasticity is determined by geographic constraints, land-use regulations, and current land use status. Interestingly, we find that all these determinants are not sufficient to explain the neighborhood supply elasticity in Hong Kong during 2003 and 2018 using the two well-established approaches in the literature. Instead, we find that the ownership constraints (the degree of land title fragmentation) have significantly determined the supply elasticity at this very micro level. This finding can be explained by the tragedy of the anticommons, in which the title fragmentation can lead to sub-optimal use of land and decrease supply elasticity. As a continuation of Baum-Snow and Han (2019), we confirm their empirical findings that neighborhoods close to the CBD have lower supply elasticity, and we propose two underlying reasons. Our evidence rejects the homevoter hypothesis but points to again the ownership constraints. This paper contributes to the housing supply at the microgeographic level, paving the way for the growing literature of within-city heterogeneity, including the price movements and many others.