The amplifying effect of capitalization rates on housing supply

Simon Büchler, Maximilian von Ehrlich and Olivier Schöni

Journal of Urban Economics, 2021, vol. 126, issue C

Abstract: We provide empirical evidence that increases in housing rental income lead to a larger supply response than price increases of the same percentage value. We rationalize this differential in supply responsiveness with an amplification mechanism arising from a downward revision of capitalization rates following a rental income increase. We document that the amplification of the housing supply price elasticity is less pronounced in geographically constrained and tightly regulated neighborhoods and areas having more sophisticated investors. Our findings hold valuable lessons for public policies affecting the housing rental income, such as rent control and housing subsidies.

Keywords: Housing supply; Capitalization rate; Land use regulation; Geographic constraints (search for similar items in EconPapers)
JEL-codes: R (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (10)

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Related works:
Working Paper: The Amplifying Effect of Capitalization Rates on Housing Supply (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:juecon:v:126:y:2021:i:c:s0094119021000528

DOI: 10.1016/j.jue.2021.103370

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