Housing Supply and Affordability: Evidence from Rents, Housing Consumption and Household Location

Raven S. Molloy, Charles G. Nathanson () and Andrew D. Paciorek
Additional contact information
Raven S. Molloy: https://www.federalreserve.gov/econres/raven-molloy.htm
Charles G. Nathanson: https://www.kellogg.northwestern.edu/faculty/directory/nathanson_charles.aspx
Andrew D. Paciorek: https://www.federalreserve.gov/econres/andrew-d-paciorek.htm

No 2020-044, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We examine how housing supply constraints affect housing affordability, which we define as the quality-adjusted price of housing services. In our dynamic model, supply constraints increase the price of housing services by only half has much as the purchase price of a home, since the purchase price responds to expected future increases in rent as well as contemporaneous rent increases. Households respond to changes in the price of housing services by altering their housing consumption and location choices, but only by a small amount. We evaluate these predictions using common measures of housing supply constraints and data from US metropolitan areas from 1980 to 2016. We find sizeable effects of supply constraints on house prices, but modest-to-negligible effects on rent, lot size, structure consumption, location choice within metropolitan areas, sorting across metropolitan areas, and housing expenditures. We conclude that housing supply constraints distort housing affor dability, and therefore housing consumption and location decisions, by less than their estimated effects on house prices suggest.

Keywords: Housing affordability; Housing supply; land use regulations; Rent (search for similar items in EconPapers)
JEL-codes: R23 R28 R31 R38 (search for similar items in EconPapers)
Pages: 68
Date: 2020-06-12
New Economics Papers: this item is included in nep-dge and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2020-44

DOI: 10.17016/FEDS.2020.044

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