The Production Function for Housing: Evidence from France

46 Pages Posted: 5 Dec 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

London School of Economics & Political Science (LSE) - Department of Geography and Environment; Centre for Economic Policy Research (CEPR)

Laurent Gobillon

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST); National Institute of Demographic Studies (INED)

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Abstract

We propose a new nonparametric 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 and Gobillon, Laurent, The Production Function for Housing: Evidence from France. IZA Discussion Paper No. 10373, Available at SSRN: https://ssrn.com/abstract=2879780

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

London School of Economics & Political Science (LSE) - Department of Geography and Environment ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 20 7955 7604 (Phone)
+44 20 7955 7412 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Laurent Gobillon

National Institute of Statistics and Economic Studies (INSEE) - Center for Research in Economics and Statistics (CREST) ( email )

15 Boulevard Gabriel Peri
Malakoff Cedex, 1 92245
France

National Institute of Demographic Studies (INED) ( email )

133, Boulevard Davout
Paris cedex 20, France 75980
France
+33 1 5606 2016 (Phone)
+33 1 5606 2199 (Fax)

HOME PAGE: http://laurent.gobillon.free.fr/

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