2014/11/10 by Christian A. L. Hilber, Wouter Vermeulen · 4 citations
Economics, Econometrics and Finance · Business, Management and Accounting · #Housing Market and Economics #Housing, Finance, and Neoliberalism #Financial Literacy, Pension, Retirement Analysis
paper · pdf · doi:10.1111/ecoj.12213
We model the impact of local supply constraints on local house prices in a setting in which households with idiosyncratic tastes sort endogenously over heterogeneous locations. We test the theoretical prediction that house prices respond more strongly to changes in local earnings in places with tight supply constraints using a unique panel dataset of 353 local planning authorities in England ranging from 1974 to 2008. Exploiting exogenous variation from a policy reform, vote shares and historical density to identify the endogenous constraintsmeasures, we find that: i) Regulatory constraints have a substantive positive impact on the house price-earnings elasticity; ii) The effect of constraints due to scarcity of developable land is largely confined to highly urbanised areas; iii) Uneven topography has a quantitatively less meaningful impact; iv) The effects of supply constraints are greater during boom than bust periods; and v) Our findings are robust to using a labour demand shock measure as demand shifter.