Housing Supply, Land Costs and Price Adjustment

Arthur Grimes and Andrew Aitken ()

Real Estate Economics, 2010, vol. 38, issue 2, 325-353

Abstract: We analyze relationships between housing supply elasticities, land costs and house price dynamics, contributing three main insights. First, higher housing supply elasticities help contain short‐run price spikes following demand shocks. Second, land price dynamics influence this relationship; supply responses are lessened and house price spikes are exacerbated as land prices increase. Third, we estimate a system of regional equations modeling housing supply using a Tobin's‐q specification (incorporating construction and land costs) and show that regional price dynamics are a function of the region's supply elasticity.

Date: 2010
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https://doi.org/10.1111/j.1540-6229.2010.00269.x

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