Divergence in the Nature of New Housing Supply

Abstract

The nature of housing supply is critical for the functioning of the housing market, macroeconomic forecasting and policy setting. This study addresses a gap in the cross-country comparative literature by providing novel insights into the nature of new housing supply in 14 countries observed quarterly between 1970 and 2015. The applied model is based on an equilibrium relationship between new housing supply and real house prices, and allows the long-run and short-run price sensitivities of supply to differ. New housing supply often tends to be price inelastic. The price sensitivity of new housing supply varies across countries, and tends to be higher in economies where housing suppliers’ business conditions are superior, prosperity is higher, access to credit is easier and population density is lower. A correlation analysis shows that policy reform aimed at new housing supply can contribute to efficient housing production, housing affordability and financial stability.

Keywords: Housing Supply, Price Elasticity, House prices, Cointegration

JEL Classification: C22, E22, R31, R38, R52