The Production Function for Housing: Evidence from France

IEB Working Paper N. 2017/07

57 Pages Posted: 22 Dec 2017

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

Laurent Gobillon

Paris School of Economics (PSE)

Multiple version iconThere are 2 versions of this paper

Date Written: September 28, 2017

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 nonland inputs by competitive house builders. For parcels of a given size, we compute housing by summing across the marginal products of nonland inputs. Differences in nonland 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 CobbDouglas function and close to constant returns after correcting for differences in user costs between land and nonland inputs and taking care of some estimation concerns. We estimate an elasticity of housing production with respect to nonland 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 (September 28, 2017). IEB Working Paper N. 2017/07, Available at SSRN: https://ssrn.com/abstract=3090324 or http://dx.doi.org/10.2139/ssrn.3090324

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

Laurent Gobillon

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

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