Housing Supply and Affordability: Evidence from Rents, Housing Consumption and Household Location

68 Pages Posted: 17 Jun 2020

See all articles by Raven Molloy

Raven Molloy

Board of Governors of the Federal Reserve System

Charles Nathanson

Northwestern University - Kellogg School of Management

Andrew Paciorek

Board of Governors of the Federal Reserve System

Date Written: June, 2020

Abstract

We examine how housing supply constraints affect housing affordability, which we define as the quality-adjusted price of housing services. In our dynamic model, supply constraints increase the price of housing services by only half has much as the purchase price of a home, since the purchase price responds to expected future increases in rent as well as contemporaneous rent increases. Households respond to changes in the price of housing services by altering their housing consumption and location choices, but only by a small amount. We evaluate these predictions using common measures of housing supply constraints and data from US metropolitan areas from 1980 to 2016. We find sizeable effects of supply constraints on house prices, but modest-to-negligible effects on rent, lot size, structure consumption, location choice within metropolitan areas, sorting across metropolitan areas, and housing expenditures. We conclude that housing supply constraints distort housing affor dability, and therefore housing consumption and location decisions, by less than their estimated effects on house prices suggest.

Keywords: Housing affordability, Housing supply, Land use regulations, Rent

JEL Classification: R23, R28, R31, R38

Suggested Citation

Molloy, Raven and Nathanson, Charles and Paciorek, Andrew, Housing Supply and Affordability: Evidence from Rents, Housing Consumption and Household Location (June, 2020). FEDS Working Paper No. 2020-044, Available at SSRN: https://ssrn.com/abstract=3628680 or http://dx.doi.org/10.17016/FEDS.2020.044

Raven Molloy (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Charles Nathanson

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-467-5141 (Phone)

HOME PAGE: http://www.charlesnathanson.com

Andrew Paciorek

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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