Elasticity of capital-land substitution in housing construction, Gaborone, Botswana: Implications for smart growth policy and affordable housing

Abstract

By determining the elasticity of capital-land substitution in housing construction, this research evaluates the impact that anti-sprawl, smart growth policies promoting higher land prices can have on housing prices. Analysis for Gaborone, Botswana captures the city's sprawling nature by showing that residential housing density is constant and low across the metropolitan area. Elasticity of capital-land substitution is determined for this city by regression analyses both for the Constant Elasticity of Substitution (CES) and for the Variable Elasticity of Substitution (VES) production functions. Results for the metropolitan area and for three municipalities within that area show that deregulation of land markets across the city, together with flexibility on building density and subsidized capital, could minimize sprawl and at the same time achieve affordable housing in Gaborone.