Regional Variation in the Elasticity of Supply of Housing

What is it about?

Our results show that the supply elasticity of housing can considerably vary across cities even in small and sparsely populated country. Both regulatory and geographic constraints are significant contributors to the elasticity and its regional variation. The findings are in line with the theoretical models of housing supply which indicate that the supply elasticity is a local (rather than a country-level) phenomenon. We also show how the Johansen Maximum Likelihood cointegration technique can be used to estimate the long-run elasticity values.

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Why is it important?

The supply elasticity of housing a key determinant of housing cost increases and thereby a major determinant of urban growth dynamics and relative success of different cities. The results show that local regulations matter w.r.t. the elasticity - the policy makers can notably affect the growth prospects of their regions via zoning and land use policies and regulation.