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Construction Elasticities and Land Availability: A Two-stage Least-squares Model of Housing Supply Using the Variable Elasticity Approach

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  • Gwilym Pryce

    (Department of Urban Studies, University of Glasgow, 25 Bute Gardens, Glasgow, G12 8RS, UK, G.Pryce@socsci.gla.ac.uk)

Abstract

This paper uses data at English local authority district level to construct a simultaneous equation model of housing construction that compares elasticities of supply between two cross-sectional periods—1988 (boom) and 1992 (slump) — using the variable elasticity approach. Econometric issues raised by earlier supply studies are discussed and tested for. The paper also discusses the rationale for, and tests the existence of, a backward-bending supply relationship, and finds that supply is concave in both periods, and 'bends backwards' during the boom. Evidence of a structural break between boom and bust is found, producing average price elasticities of supply noticeably smaller in the boom (0.58) than in the slump (1.03), with considerable variation across disticts. Land supply elasticities are found to be more stable over time, and marginally greater in the boom (0.75) than in the slump (0.71). The paper also calculates second partial derivatives based on the whole demand-supply system to obtain estimates of the impact of land release on new house prices.

Suggested Citation

  • Gwilym Pryce, 1999. "Construction Elasticities and Land Availability: A Two-stage Least-squares Model of Housing Supply Using the Variable Elasticity Approach," Urban Studies, Urban Studies Journal Limited, vol. 36(13), pages 2283-2304, December.
    • Handle: RePEc:sae:urbstu:v:36:y:1999:i:13:p:2283-2304
    DOI: 10.1080/0042098992421
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    References listed on IDEAS

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    Cited by:

    1. Malpezzi, Stephen & Maclennan, Duncan, 2001. "The Long-Run Price Elasticity of Supply of New Residential Construction in the United States and the United Kingdom," Journal of Housing Economics, Elsevier, vol. 10(3), pages 278-306, September.
    2. Jiazhe Zhu & Gwilym Pryce & Sarah Brown, 2019. "Immigration and house prices under various labour market structures in England and Wales," Urban Studies, Urban Studies Journal Limited, vol. 56(9), pages 1801-1817, July.
    3. Anthony Owusu-Ansah, 2012. "Modelling the supply of new residential construction for local housing markets and estimation of housing supply price elasticities: The case of Aberdeen, UK," ERES eres2012_097, European Real Estate Society (ERES).
    4. Oliver W. Lerbs, 2014. "House prices, housing development costs, and the supply of new single-family housing in German counties and cities," Journal of Property Research, Taylor & Francis Journals, vol. 31(3), pages 183-210, September.
    5. Oliver Lerbs, "undated". "House Prices, Housing Development Costs, and the Supply of New Single-Family Housing in German Counties and Cities," Working Papers 201283, Institute of Spatial and Housing Economics, Munster Universitary.
    6. Morley, Ciara & Duffy, David & McQuinn, Kieran, 2015. "A Review of Housing Supply Policies," Quarterly Economic Commentary: Special Articles, Economic and Social Research Institute (ESRI).
    7. Jinyao Lin & Tongli Chen & Qiazi Han, 2018. "Simulating and Predicting the Impacts of Light Rail Transit Systems on Urban Land Use by Using Cellular Automata: A Case Study of Dongguan, China," Sustainability, MDPI, vol. 10(4), pages 1-16, April.
    8. Harvey Cutler & Stephen Davies, 2007. "The Impact Of Specific‐Sector Changes In Employment On Economic Growth, Labor Market Performance And Migration," Journal of Regional Science, Wiley Blackwell, vol. 47(5), pages 935-963, December.
    9. Geoffrey Meen, 2001. "The Economic Role of New Housing," ERES eres2001_231, European Real Estate Society (ERES).
    10. Geoffrey Meen, 2016. "Spatial housing economics: A survey," Urban Studies, Urban Studies Journal Limited, vol. 53(10), pages 1987-2003, August.
    11. Goodman, Allen C., 2005. "Central cities and housing supply: Growth and decline in US cities," Journal of Housing Economics, Elsevier, vol. 14(4), pages 315-335, December.
    12. Glen Bramley & Chris Leishman, 2005. "Planning and Housing Supply in Two-speed Britain: Modelling Local Market Outcomes," Urban Studies, Urban Studies Journal Limited, vol. 42(12), pages 2213-2244, November.
    13. Ali Turel, 2012. "High housing production under less regulated market conditions in Turkey," ERES eres2012_210, European Real Estate Society (ERES).
    14. Michael White & Philip Allmendinger, 2003. "Land-use Planning and the Housing Market: A Comparative Review of the UK and the USA," Urban Studies, Urban Studies Journal Limited, vol. 40(5-6), pages 953-972, May.
    15. Duffy, David & McQuinn, Kieran & Morley, Ciara & Foley, Daniel, 2015. "Quarterly Economic Commentary, Winter 2015," Forecasting Report, Economic and Social Research Institute (ESRI), number QEC20154, march.
    16. Colin Jones & Mike Coombes & Neil Dunse & David Watkins & Colin Wymer, 2012. "Tiered Housing Markets and their Relationship to Labour Market Areas," Urban Studies, Urban Studies Journal Limited, vol. 49(12), pages 2633-2650, September.
    17. Ball, Michael & Meen, Geoffrey & Nygaard, Christian, 2010. "Housing supply price elasticities revisited: Evidence from international, national, local and company data," Journal of Housing Economics, Elsevier, vol. 19(4), pages 255-268, December.
    18. Chris Leishman & Glen Bramley, 2005. "A Local Housing Market Model with Spatial Interaction and Land-Use Planning Controls," Environment and Planning A, , vol. 37(9), pages 1637-1649, September.
    19. Lerbs, Oliver W., 2012. "House prices, housing development costs, and the supply of new single-family housing in German counties and cities," CAWM Discussion Papers 57, University of Münster, Münster Center for Economic Policy (MEP).
    20. Pedro M. M. L. Garcês & Cesaltina Pacheco Pires, 2011. "New housing supply: what do we know and how can we learn more?," CEFAGE-UE Working Papers 2011_18, University of Evora, CEFAGE-UE (Portugal).
    21. Harvey Cutler & Irina Strelnikova, 2004. "The Impact of the US Sales Tax Rate on City Size and Economic Activity: A CGE Approach," Urban Studies, Urban Studies Journal Limited, vol. 41(4), pages 875-885, April.
    22. Lozano Navarro, Francisco-Javier, 2015. "Elasticidad precio de la oferta inmobiliaria en el Gran Santiago [Housing supply elasticity in Greater Santiago]," MPRA Paper 65012, University Library of Munich, Germany.
    23. Adams, David, 2008. "Mapping out the regulatory environment and its interaction with land and property markets," Energy Policy, Elsevier, vol. 36(12), pages 4570-4574, December.
    24. Colin Jones, 2002. "The Definition of Housing Market Areas and Strategic Planning," Urban Studies, Urban Studies Journal Limited, vol. 39(3), pages 549-564, March.

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