On Commercial Construction Activity's Long and Variable Lags

David Glancy, Robert Kurtzman and Lara Loewenstein

No 2024-016, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We use microdata on the phases of commercial construction projects to document three facts regarding time-to-plan lags: (1) plan times are long--about 1.5 years on average--and highly variable, (2) roughly one-third of projects are abandoned in planning, (3) property price appreciation reduces the likelihood of abandonment. We construct a model with endogenous planning starts and abandonment that matches these facts. Endogenous abandonment makes short-term building supply more elastic, as price shocks immediately affect the exercise of construction options rather than just planning starts. The model has the testable implicationthat supply is more elastic when there are more “shovel ready†projects available to advance to construction. We use local projections to validate that this prediction holds in the cross-section for U.S. cities.

Keywords: Commercial real estate; Construction; Time to plan (search for similar items in EconPapers)
JEL-codes: E22 E32 L74 R33 (search for similar items in EconPapers)
Pages: 45 p.
Date: 2024-04-04
New Economics Papers: this item is included in nep-ppm and nep-ure
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https://www.federalreserve.gov/econres/feds/files/2024016pap.pdf (application/pdf)

Related works:
Working Paper: On Commercial Construction Activity's Long and Variable Lags (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2024-16

DOI: 10.17016/FEDS.2024.016

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