Residential Construction: Using the Urban Growth Model to Estimate Housing Supply
Abstract
This article presents an empirical model of housing supply derived from urban growth theory. This approach describes new housing construction as a function of changes in house prices and costs rather than as a function of the levels of those variables, which previous studies have used. Empirical tests support this specification over the leading alternative models. Our estimates show that a 10% rise in real prices leads to an 0.8% increase in the housing stock, which is accomplished by a temporary 60% increase in the annual number of starts, spread over four quarters.
Citation
Mayer, Christopher, and C. Somerville. "Residential Construction: Using the Urban Growth Model to Estimate Housing Supply." Journal of Urban Economics 48, no. 1 (July 2000): 85-109.
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