Housing Supply: The Other Half of the Market A Note from the Editor

Abstract

When I first read Edgar Olsen’s (1987) excellent review of the literature on the demand and supply for housing several years ago I was reminded of a pamphlet I saw during graduate school. The pamphlet purported to be a guide to climbing and fishing at one of Wisconsin’s more obscure parks and included a description of various climbing opportunities. On its last page, the pamphlet reported that there was no fishing at the area. By contrast, Olsen’s review examines the lessons learned from a large amount of literature on housing demand but then concludes that there is a comparative dearth of research on housing supply. While the literature on housing supply (and demand) has certainly grown in the last ten years, housing supply remains enormously understudied relative to demand, a situation that at first glance is puzzling since housing supply comprises half of the housing market. Why then has housing supply received such limited attention? It is unlikely that lack of interest is the reason. Rather, I suspect there is a widespread belief that adequate data do not exist to properly examine empirical issues pertinent to housing supply or possibly that the conceptual foundations of housing supply are difficult to model. With these considerations as a backdrop, this issue seeks to accomplish three principle goals. First, to demonstrate that we can indeed study housing supply, both at the empirical and conceptual levels. Second, to summarize what we know about housing supply and provide an important increment to our knowledge of housing supply. Third, to highlight areas and questions that are both important and feasible to address in future research. To accomplish these goals this issue is organized as follows. The first article by DiPasquale conducts a selected review of the literature on housing supply. The review does not simply list what other studies have done but organizes the literature on housing supply into different categories and identifies areas in which our knowledge to date is lacking. An important point emphasized by DiPasquale is that most of the empirical work on housing supply has utilized aggregate time-series data and that there is a need to develop high-quality micro databases suitable for examining the micro foundations of housing supply. Both for readers familiar with the housing literature, and for readers new to the area, this article is a good starting point before examining the other articles in the issue. Blackley follows with an article that addresses the most frequently researched issue in the literature on housing supply: measuring the elasticity of new housing supply. Using a common database, Blackley estimates the long-run elasticity of new housing supply for four different specifications that have appeared in the literature since 1979 and