On Local Housing Supply Elasticity

59 Pages Posted: 5 Aug 2008

See all articles by Albert Saiz

Albert Saiz

MIT Department of Urban Studies and Planning; IZA Institute of Labor Economics

Date Written: July 31, 2008

Abstract

Housing markets have been established as fundamental to understanding business cycles, financial market stability, labor mobility, household wealth, individual portfolio allocation, and urban dynamics. What determines local housing supply elasticities and prices? In this paper I give empirical content to the concept of land availability by processing satellite-generated data on elevation and presence of water bodies to precisely estimate the amount of developable land in each metro area. I demonstrate that development is effectively curtailed by the presence of slopes above 15% and that most areas that are widely regarded as supply-inelastic are, in fact, severely land-constrained by their topography. Furthermore, the extent of topographical constraints correlates positively and strongly with regulatory barriers to development. Immigration, high taxes, politics, and "communitarian" social capital are also predictive of more restrictive residential land regulations. I estimate a system of equations where housing prices, construction, and regulations are all determined endogenously. Housing supply elasticities can be well-characterized as functions of both physical and regulatory constraints, which in turn are endogenous to prices and past growth. The results provide operational estimates of local supply elasticities in all major US metropolitan areas.

Keywords: Housing supply, topography, growth controls

JEL Classification: R31, R10, R14

Suggested Citation

Saiz, Albert, On Local Housing Supply Elasticity (July 31, 2008). Available at SSRN: https://ssrn.com/abstract=1193422 or http://dx.doi.org/10.2139/ssrn.1193422

Albert Saiz (Contact Author)

MIT Department of Urban Studies and Planning ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States
617-252-1687 (Phone)
617-258-6991 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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