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.
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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