Grimes, A. & Aitken, A. (2010). Housing supply, land costs and price adjustment. Real Estate Economics, 38(2), 325-353.
Permanent Research Commons link: http://hdl.handle.net/10289/4007
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-q 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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