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The Production Function for Housing: Evidence from France

Author

Listed:
  • Pierre-Philippe Combes

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research)

  • Gilles Duranton

    (University of Pennsylvania)

  • Laurent Gobillon

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

We propose a new nonparametric approach to estimate the production function for housing. Our estimation treats output as a latent variable and relies on a first-order condition for profit maximization combined with a zero-profit condition. More desirable locations command higher land prices and, in turn, more capital to build houses. For parcels of a given size, we compute housing production by summing across the marginal products of capital. For newly built single-family homes in France, the production function for housing is close to constant returns and is well, though not perfectly, approximated by a Cobb-Douglas function with a capital elasticity of 0.65.

Suggested Citation

  • Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2021. "The Production Function for Housing: Evidence from France," PSE-Ecole d'économie de Paris (Postprint) halshs-03342578, HAL.
    • Handle: RePEc:hal:pseptp:halshs-03342578
    DOI: 10.1086/715076
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03342578
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    More about this item

    Keywords

    Housing; Production function;

    JEL classification:

    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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