Price Elasticity Of Housing Supply Research Articles

Disentangling Housing Supply to Shift towards Smart Cities: Analysing Theoretical and Empirical Studies

The search for a pleasant home has concerned people ever since. Paradoxically, people are facing strong difficulties in finding a decent place to settle their lives in cities. As such, the housing market regained momentum in connection with the development of Smart Cities, where life quality of residents is strongly emphasized. Well-being in the metropolis is affected by a wide variety of factors with housing supply being among the most important, hence stirred by financing costs, construction costs, vacancy rate, sales delay, inflation rate, housing stock, price of agricultural land, and regulation. The present article reviews empirical studies on housing supply for a better understanding of the dynamics in this market, shedding some light on the expectable outcomes of policy actions in the promotion of sustainable housing towards the smart city transition. Our review shows that the long-run price elasticity of housing supply is larger than the short-run, as well as the existence of substantial differences in the price elasticity across countries and regions. As such, overall, the hypothesis of a perfectly elastic supply is rejected. In addition, our review highlights that housing supply is negatively related to financial costs, inflation, sales delay, and the existence of regulatory or physical constraints. Also, the elasticity is lower when there are regulatory constraints. Newfangled strategic interaction models, though overlooked in the literature, reinforce that housing does not fit the perfect competition frame. The review proves that we are in face of a non-competitive market in which policy intervention is required to maximize social welfare; policy packages to grant people access to the housing market may be required. However, policy interventions should be carefully designed and clear, to mitigate their potentially negative impact on the housing supply as adverse results may be harmful to the transition towards a smart city.

Housing prices and speculation dynamics: a study of Auckland housing market

ABSTRACT Many housing markets across the globe have experienced upward trends in real estate prices during the past two decades. The dynamics between housing prices and speculation have been analysed by existing housing literature, but this study has a few features that may deepen the understanding of this topic. This research uses transaction-level data, focuses on only investor-purchase records, distinguishes leveraged transactions from unleveraged ones and adopts a new proxy for property speculation. Furthermore, the price elasticity of housing supply has been examined as the price responsiveness is important for understanding the topic in a supply-constrained market. We build a stock adjustment model to estimate the elasticity and a vector error-correction model to conduct Granger causality tests, impulse response analyses and a variance decomposition analysis. The findings uncover a feedback loop in a market with inelastic housing supply: investors’ speculative behaviour lifts Auckland housing prices which in turn spur further housing speculation.

Revisiting metropolitan house price-income relationships

We explore long-term patterns of the house price-income relationship across the 70 largest U.S. metropolitan areas. In line with a standard spatial equilibrium model, our empirical findings indicate that house price-income ratios are typically not stable even over the long run. In contrast, panel regression models that relate house prices to aggregate personal income and allow for regional heterogeneity yield stationary long-term relationships in most areas. The relationship between house prices and income varies significantly across locations, underscoring the importance of using estimation techniques that allow for spatial heterogeneity. The substantial differences across metropolitan areas are closely related to the price elasticity of housing supply.

U.S. metropolitan house price dynamics

Using data for 70 U.S. metropolitan areas, this study explores spatial heterogeneity in house price dynamics. We use recent advances in panel econometrics that allow for spatial heterogeneity, cross-sectional dependence, and non-stationary but cointegrated data. We test for spatial differences and analyze the relationship between the price elasticity of housing supply and the income elasticity of prices, as well as bubble size and duration. The long-term elasticity of house prices with respect to aggregate personal income averages 0.81, but varies considerably across metropolitan areas. The long-term income elasticity generally is greater in the more supply-inelastic metropolitan areas, and we show that bubble size and duration are inversely related to supply elasticity. Also short-term momentum and reversion dynamics show substantial spatial heterogeneity.

U.S. Metropolitan House Price Dynamics

Using data for 70 U.S. metropolitan areas, this study explores spatial heterogeneity in house price dynamics. We use recent advances in panel econometrics that allow for spatial heterogeneity, cross-sectional dependence, and non-stationary but cointegrated data. We test for spatial differences and analyze the relationship between the price elasticity of housing supply and the income elasticity of prices, as well as bubble size and duration. The long-term elasticity of house prices with respect to aggregate personal income averages 0.81, but varies considerably across metropolitan areas. The long-term income elasticity generally is greater in the more supply-inelastic metropolitan areas, and we show that bubble size and duration are inversely related to supply elasticity. Also short-term momentum and reversion dynamics show substantial spatial heterogeneity.

No Price Like Home: Global House Prices, 1870–2012

How have house prices evolved over the long run? This paper presents annual house prices for 14 advanced economies since 1870. We show that real house prices stayed constant from the nineteenth to the mid-twentieth century, but rose strongly and with substantial cross-country variation in the second half of the twentieth century. Land prices, not replacement costs, are the key to understanding the trajectory of house prices. Rising land prices explain about 80 percent of the global house price boom that has taken place since World War II. Our findings have implications for the evolution of wealth-to-income ratios, the growth effects of agglomeration, and the price elasticity of housing supply. (JEL C43, N10, N90, R31)

Migration, housing market, and labor market responses to employment shocks

One reason for the United States’ economic success is the willingness of its residents to follow jobs. Households’ decisions to move depend not only on job prospects but also on the relative cost of housing. I investigate how the housing market affects the flow of workers across cities. This occurs through at least two channels: the relative mobility of homeowners versus renters, and the relative cost of housing across markets. I use homeownership rates to measure the former, and use an index that measures house prices across metropolitan statistical areas (MSAs) and the price elasticity of housing supply to capture the latter. To show how variation in the these housing market factors not only affects cross-city migration but also the housing and labor markets, I estimate a VAR model of migration, employment, wages, house prices, and new housing supply using annual data from 277 US MSAs for 1990–2006. The response functions based on labor supply and demand shocks show substantial variation when evaluated at different values of the homeownership rate, the price elasticity of housing supply, and relative housing prices. I also allow for spillover effects in the model that reflect the impact of a labor demand shock in the nearest city.

The Estimation and Determinants of the Price Elasticity of Housing Supply: Evidence from China

This paper provides a first look at estimates of the price elasticity of the housing supply in China at both the national and city levels. Using a panel dataset consisting of 35 cities in China from 1998 to 2009, the findings show that the implied national price elasticity of housing supply is between 2.8 and 5.6. The city-level analysis reveals that geographic, economic as well as regulatory factors are significant determinants of the variation in the observed price elasticity of housing supply. The study of a different regulatory and economic environment contributes to the growing literature on supply elasticity and helps explain the seemingly wide variation in supply elasticities observed across cities and countries.

Should the optimal portfolio be region-specific? A multi-region model with monetary policy and asset price co-movements

A multi-region, dynamic stochastic general equilibrium (MRDSGE) model is built to show that differences in the price elasticity of housing supply can be related to stylized facts on regional differences in (1) house price level, (2) house price volatility, (3) monetary policy propagation mechanism and (4) household asset portfolio. In addition, regional house prices are found to move more closely with regional fundamentals than with the national GDP. The correlation between the national stock price and the regional housing price also vary significantly across regions, which suggests that optimal portfolio should be region specific.

Housing supply price elasticities revisited: Evidence from international, national, local and company data

This paper re-examines one of the key parameters in housing economics – the price elasticity of housing supply. In the international literature, there is little agreement on its value or even on the appropriate methodology for its measurement. The paper argues that different spatial scales capture different aspects of the problem and, therefore, there is merit from comparing results at international, national, local and firm level. Using standardised models, there is evidence that the responsiveness of housing supply to market conditions is lower in Britain than in the US or Australia. However, supply is more responsive to the change in house prices than their level. With exceptions, most past research on supply in Britain concentrates on the national or regional dimensions. The paper finds that there are also insights to be obtained from examining local and firm level data. Local estimation across the Thames Gateway shows the importance of planning constraints on supply elasticities, but historical patterns of land use and geography are also important. Firm level data indicate that supply elasticities are greater for large firms than for small firms.

Regulation and the High Cost of Housing in California

This paper analyzes the effect of regulations governing land use and residential construction upon the course of housing prices in California. We explore the linkage between regulation and housing prices using measures of housing prices estimated from the Public Use Microdata Samples (PUMS) of the 1990 and 2000 Census of Population and Housing, together with a detailed cross-sectional land use regulation and growth controls in California cities. We explore mechanisms by which regulatory stringency may affect housing outcomes for consumers. First, we assess whether housing is more expensive in more regulated cities. Second, we assess whether growth in the city-level housing stock over the period of a decade depends on the degree of land-use regulation at the start of the decade. Finally, we estimate the price elasticity of housing supply for regulated and relatively unregulated cities. Our results suggest that current regulations have powerful effects on housing outcomes.