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Housing Supply and Affordability: Evidence from Rents, Housing Consumption and Household Location

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Abstract

We examine how housing supply constraints affect housing affordability, which we define as the quality-adjusted price of housing services. In our dynamic model, supply constraints increase the price of housing services by only half has much as the purchase price of a home, since the purchase price responds to expected future increases in rent as well as contemporaneous rent increases. Households respond to changes in the price of housing services by altering their housing consumption and location choices, but only by a small amount. We evaluate these predictions using common measures of housing supply constraints and data from US metropolitan areas from 1980 to 2016. We find sizeable effects of supply constraints on house prices, but modest-to-negligible effects on rent, lot size, structure consumption, location choice within metropolitan areas, sorting across metropolitan areas, and housing expenditures. We conclude that housing supply constraints distort housing affor dability, and therefore housing consumption and location decisions, by less than their estimated effects on house prices suggest.

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  • Raven S. Molloy & Charles G. Nathanson & Andrew D. Paciorek, 2020. "Housing Supply and Affordability: Evidence from Rents, Housing Consumption and Household Location," Finance and Economics Discussion Series 2020-044, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2020-44
    DOI: 10.17016/FEDS.2020.044
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    1. Nicholas Chiumenti & Amrita Kulka & Aradhya Sood, 2022. "How to Increase Housing Affordability: Understanding Local Deterrents to Building Multifamily Housing," Working Papers 22-10, Federal Reserve Bank of Boston.
    2. Mense, Andreas, 2021. "Secondary housing supply," FAU Discussion Papers in Economics 05/2021, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.
    3. Reher, Michael, 2021. "Finance and the supply of housing quality," Journal of Financial Economics, Elsevier, vol. 142(1), pages 357-376.

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    More about this item

    Keywords

    Housing affordability; Housing supply; land use regulations; Rent;
    All these keywords.

    JEL classification:

    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R28 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Government Policy
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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