Housing Supply Elasticity and Growth: Evidence from Italian Cities
48 Pages Posted: 28 May 2020
Date Written: March 18, 2020
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: Suggested Citation