Housing Supply, Land Costs and Price Adjustment

Published: 2010

Authors: Andrew Aitken, Arthur Grimes

We analyze relationships between housing supply elasticities, land costs and house price dynamics, contributing three main insights.

  • First, higher housing supply elasticities help contain short-run price spikes following demand shocks.
  • Second, land price dynamics influence this relationship; supply responses are lessened and house price spikes are exacerbated as land prices increase.
  • Third, we estimate a system of regional equations modeling housing supply using a Tobin's specification (incorporating construction and land costs) and show that regional price dynamics are a function of the region's supply elasticity.

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Grimes, Arthur and Andrew Aitken. 2010. "Housing Supply, Land Costs and Price Adjustment", Real Estate Economics 38:2, pp. 325-53.