Supply Constraints and Land Prices in Growing Cities: The Role of Agglomeration Economies

Burcu Eyigungor and Satyajit Chatterjee

No 1124, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: What implications does land supply elasticity have for land price appreciation in cities that are experiencing population or productivity growth? In the setting of a circular city model with a production externality, we show that residential land prices grow faster in the city that can expand more easily (i.e., has a higher land price elasticity), if the production externality is high enough. This result is opposite of what would be predicted if production externalities are ignored and provides one possible explanation for the observed weak correlation between land supply elasticities and house price appreciation.

Date: 2012
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