Housing supply elasticity, gasoline prices, and residential property values

We revise the standard monocentric city model to incorporate differential assumptions about the elasticity of housing supply in response to changes in transportation costs. We test the implications of the model with data from the Las Vegas metropolitan area and find that housing markets respond roughly the same in the face of increases and decreases in gas prices. Supply elasticity is evidently relatively elastic in response to both expansions and contractions, despite expectations that supply is much more inelastic when markets contract when gas prices increase. Simulating the effect of a 10% increase in gas prices from a carbon tax, we find that homes near the center of town rise on average $532 while homes beyond 5 miles fall on average $1,064. These findings are consistent with negative rent gradient results reported in Coulson and Engle (1987) and Larson and Zhao (2017).