The Economic Implications of Housing Supply

Edward Glaeser and Joseph Gyourko

No 23833, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this essay, we review the basic economics of housing supply and the functioning of US housing markets to better understand the distribution of home prices, household wealth and the spatial distribution of people across markets. We employ a cost-based approach to gauge whether a housing market is delivering appropriately priced units. Specifically, we investigate whether market prices (roughly) equal the costs of producing the housing unit. If so, the market is well-functioning in the sense that it efficiently delivers housing units at their production cost. Of course, poorer households still may have very high housing cost burdens that society may wish to address via transfers. But if housing prices are above this cost in a given area, then the housing market is not functioning well— and housing is too expensive for all households in the market, not just for poorer ones. The gap between price and production cost can be understood as a regulatory tax, which might be efficiently incorporating the negative externalities of new production, but typical estimates find that the implicit tax is far higher than most reasonable estimates of those externalities.

JEL-codes: D45 R12 R30 (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-ure
Note: PE
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Citations: View citations in EconPapers (10)

Published as Edward Glaeser & Joseph Gyourko, 2018. "The Economic Implications of Housing Supply," Journal of Economic Perspectives, vol 32(1), pages 3-30.

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Journal Article: The Economic Implications of Housing Supply (2018)
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