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The Production Function for Housing: Evidence from France

Author

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  • Pierre-Philippe Combes

    (Sciences Po - Sciences Po, GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique)

  • Gilles Duranton

    (Wharton School, University of Pennsylvania - 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)

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 the firstorder condition for profit maximisation with respect to nonland inputs by competitive house builders. For parcels of a given size, we compute housing by summing across the marginal products of nonland inputs. Differences in nonland inputs are caused by differences in land prices that reflect differences in the demand for housing across locations. We implement our methodology on newlybuilt singlefamily homes in France. We find that the production function for housing is reasonably well, though not perfectly, approximated by a CobbDouglas function and close to constant returns. After correcting for differences in user costs between land and nonland inputs and taking care of some estimation concerns, we estimate an elasticity of housing production with respect to nonland inputs of about 0.80.

Suggested Citation

  • Pierre-Philippe Combes & Gilles Duranton & Laurent Gobillon, 2016. "The Production Function for Housing: Evidence from France," Working Papers halshs-01412393, HAL.
    • Handle: RePEc:hal:wpaper:halshs-01412393
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01412393
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    References listed on IDEAS

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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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