Housing Supply Elasticity and Growth: Evidence from Italian Cities

48 Pages Posted: 28 May 2020

See all articles by Antonio Accetturo

Antonio Accetturo

Bank of Italy

Andrea Lamorgese

Bank of Italy - Research Department

Sauro Mocetti

Bank of Italy

Dario Pellegrino

Bank of Italy

Date Written: March 18, 2020

Abstract

The paper examines the impact of housing supply elasticity on urban development. Using data for a sample of around one hundred Italian main cities observed over 40 years, we first estimate housing supply elasticities at the city level. Second, we show that differences in the elasticity of housing supply may determine the extent to which a demand shock translates into more intense employment growth or more expensive houses. To address endogeneity of housing supply elasticity, we exploit a synthetic measure of physical constraints to residential development as instrumental variable. We find that an exogenous increase in labour demand determines a rise in employment and housing prices; however, in cities with a less elastic housing supply the impact on economic growth is significantly lessened while the effects on house prices are greater.

Keywords: housing supply elasticity, city growth, house prices, physical constraints

JEL Classification: R11

Suggested Citation

Accetturo, Antonio and Lamorgese, Andrea and Mocetti, Sauro and Pellegrino, Dario, Housing Supply Elasticity and Growth: Evidence from Italian Cities (March 18, 2020). Bank of Italy Temi di Discussione (Working Paper) No. 1267, Available at SSRN: https://ssrn.com/abstract=3612929 or http://dx.doi.org/10.2139/ssrn.3612929

Antonio Accetturo

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Andrea Lamorgese

Bank of Italy - Research Department ( email )

Via Nazionale 91
00184 Roma
Italy

Sauro Mocetti (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Dario Pellegrino

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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