Housing Supply Elasticity in Sydney Local Government Areas

Abstract

We report supply elasticity estimates of residential property (houses and apartments) for Local Government Areas (LGAs) in metropolitan Sydney. Using annual data for 1991-2012, the average supply elasticity estimate across all LGAs is 0.2 for houses and 0.8 for apartments. The supply of houses is inelastic in all 43 LGAs; in contrast apartment supply is elastic – greater than unity – in about one-third of LGAs. We develop a model to explain the cross-section variation in supply elasticity across LGAs. For houses, supply elasticity is negatively related to an LGA’s population density, the time taken by a Local Council to process a development application and to various measures of the amount of land in an LGA that is unavailable for new housing development. Variation in supply elasticity for apartments across LGAs is unrelated to any of the available regressors.

Keywords: housing supply, supply elasticity, development application, undevelopable land

JEL Classification: R31, R52