Job Creation and Housing Construction: Constraints on Metropolitan Area Employment Growth

46 Pages Posted: 5 Jan 2006

See all articles by Raven E. Saks

Raven E. Saks

U.S. Federal Reserve - Division of Research and Statistics

Date Written: October 2005

Abstract

Differences in the supply of housing generate substantial variation in housing prices across the United States. Because housing prices influence migration, the elasticity of housing supply also has an important impact on local labor markets. Specifically, an increase in labor demand will translate into less employment growth and higher wages in places where it is relatively difficult to build new houses. To identify metropolitan areas where the supply of housing is constrained, I assemble evidence on housing supply regulations from a variety of sources. In places with relatively few barriers to construction, an increase in housing demand leads to a large number of new housing units and only a moderate increase in housing prices. In contrast, for an equal demand shock, places with more regulation experience a 17 percent smaller expansion of the housing stock and almost double the increase in housing prices. Furthermore, I find that housing supply regulations have a significant effect on local labor market dynamics. Whereas a 1 percent increase in labor demand generally leads to a 1 percent increase in the long-run level of employment, the employment response is less than 0.8 percent in places where the housing supply is highly constrained.

Keywords: Housing supply, zoning regulations, local labor markets

JEL Classification: R23, R52

Suggested Citation

Saks, Raven E., Job Creation and Housing Construction: Constraints on Metropolitan Area Employment Growth (October 2005). FEDS Working Paper No. 2005-49. Available at SSRN: https://ssrn.com/abstract=873866 or http://dx.doi.org/10.2139/ssrn.873866

Raven E. Saks (Contact Author)

U.S. Federal Reserve - Division of Research and Statistics ( email )

20th and C Streets, NW
Washington, DC 20551
United States

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