Distant Shocks, Migration, and Housing Supply in India

54 Pages Posted: 6 Apr 2021 Last revised: 10 Jan 2022

See all articles by Arnab Dutta

Arnab Dutta

Price School of Public Policy

Sahil Gandhi

University of Manchester

Richard K. Green

University of Southern California - Lusk Center for Real Estate

Date Written: April 5, 2021

Abstract

Housing supply elasticity estimates for cities in large and rapidly urbanizing countries like India can tell us whether their urban housing markets' supply keeps pace with the rising demand. The case of India is particularly interesting in this regard because of its variety of housing typologies. We estimate the supply elasticity of (1) durable or formal houses made of concrete, bricks, and metal, (2) non-durable or informal houses made of thatch, mud, plastic, etc. and typically found in slums, and (3) vacant residential housing units in urban India between 2001 and 2011. We use two migration-inducing exogenous events --- negative rainfall shocks and a highway upgrade program --- occurring in distant states as demand shifters for local urban housing markets. We apply the Rosen-Roback spatial equilibrium framework to show that the negative rainfall shocks and the highway upgrade program in distant states increased inter-state migration in India. This increase led to urban population growth, and therefore, higher demand for housing in local urban markets. Our findings are three-fold. First, we estimate that the decadal supply elasticity of durable housing in urban India is 1.62. Second, we find that the supply elasticity of non-durable housing is -0.49. A negative supply elasticity value for non-durable houses is consistent with the existence of urban gentrification through the demolition and upgradation of slums. And finally, we estimate the elasticity of vacant residential housing units' supply to be 2.62. We posit that a relatively higher vacant housing supply elasticity reflects speculative building by developers in Indian cities during the 2000s.

Keywords: Housing, Migration, India

JEL Classification: J61, R23, R31

Suggested Citation

Dutta, Arnab and Gandhi, Sahil and Green, Richard K., Distant Shocks, Migration, and Housing Supply in India (April 5, 2021). Available at SSRN: https://ssrn.com/abstract=3820187 or http://dx.doi.org/10.2139/ssrn.3820187

Arnab Dutta

Price School of Public Policy ( email )

2250 Alcazar Street
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3237096609 (Phone)

Sahil Gandhi (Contact Author)

University of Manchester ( email )

Booth St West
Manchester, N/A M15 6PB
United Kingdom

Richard K. Green

University of Southern California - Lusk Center for Real Estate ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

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