The Economic Implications of Housing Supply

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Citation: Ed Glaeser, Joe Gyourko (2017/01/04) The Economic Implications of Housing Supply. Zell/Lurie Working Paper (RSS)
Internet Archive Scholar (search for fulltext): The Economic Implications of Housing Supply
Download: http://realestate.wharton.upenn.edu/research/papers/full/802.pdf
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Summary

Argues that "housing markets are functioning well if they deliver homes at close to what we term minimum profitable production costs (MPPC)" which equal (land + construction costs)*(entrepreneurial profits) and suggests three groupings:

  • price < MPPC: built in more successful times eg Detroit
  • price ~= MPPC: supply elastic eg Atlanta
  • price > MPPC: supply politically constrained eg San Francisco

Around 3/4 US homes in first two groups.

Construction costs only range from abut $70/square foot to $90/square foot in cheaper/more expensive construction markets in the US.

Measures of land use restrictions correlate with price/MPPC, with greater dispersal of latter over time, eg share of metro areas with price/MPPC > 1.25 rose from 6.4% to 15.4% between 1985 and 2013.

Transfer of wealth to people who happened to own in high price/MPPC areas.

Productivity also impacted, depending on assumptions up to 2% to up to 15% of GDP.


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