The Production Function for Housing: Evidence from France

47 Pages Posted: 29 Nov 2016

See all articles by Pierre-Philippe Combes

Pierre-Philippe Combes

Université de Lyon; Sciences Po - Department of Economics; Centre for Economic Policy Research (CEPR)

Gilles Duranton

University of Pennsylvania - Real Estate Department

Multiple version iconThere are 2 versions of this paper

Date Written: November 2016

Abstract

We propose a new non-parametric approach to estimate the production function for housing. Our estimation treats output as a latent variable and relies on the first-order condition for profit maximisation with respect to non-land inputs by competitive house builders. For parcels of a given size, we compute housing by summing across the marginal products of non-land inputs. Differences in non-land inputs are caused by differences in land prices that reflect differences in the demand for housing across locations. We implement our methodology on newly-built single-family homes in France. We find that the production function for housing is reasonably well, though not perfectly, approximated by a Cobb-Douglas function and close to constant returns. After correcting for differences in user costs between land and non-land inputs and taking care of some estimation concerns, we estimate an elasticity of housing production with respect to non-land inputs of about 0.80.

Keywords: Housing, Production function

JEL Classification: R14, R31, R32

Suggested Citation

Combes, Pierre-Philippe and Duranton, Gilles, The Production Function for Housing: Evidence from France (November 2016). CEPR Discussion Paper No. DP11669, Available at SSRN: https://ssrn.com/abstract=2877274

Pierre-Philippe Combes (Contact Author)

Université de Lyon ( email )

92 Rue Pasteur
Lyon, 69007
France

Sciences Po - Department of Economics ( email )

28, rue des Saints peres
Paris, 75007
France

HOME PAGE: http://https://www.gate.cnrs.fr/ppcombes

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Gilles Duranton

University of Pennsylvania - Real Estate Department ( email )

Philadelphia, PA 19104-6330
United States

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