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Explainer: Bad housing supply assumptions

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  • Murray, Cameron

    (The University of Sydney)

Abstract

Glaeser and Gyourko (2003) (G&G) famously argued that if the marginal cost of a square metre of housing lot land is less than the average cost, this is evidence of a price effect from “artificial” supply constraints. They call this price gap a “regulatory tax”, but it is also known as a “zoning effect” or “zoning tax”. Their logic has been relied upon by hundreds of other studies and in numerous replications of their approach, including by economists from the Reserve Bank of Australia, whose results were widely publicised (Kendall and Tulip, 2018). However, the economic assumptions behind G&G’s approach are implausible. Although popular, their method should not be relied upon to infer anything about the nature of housing supply. This note explains why.

Suggested Citation

  • Murray, Cameron, 2021. "Explainer: Bad housing supply assumptions," OSF Preprints 4jmb8, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:4jmb8
    DOI: 10.31219/osf.io/4jmb8
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    References listed on IDEAS

    as
    1. Ross Kendall & Peter Tulip, 2018. "The Effect of Zoning on Housing Prices," RBA Research Discussion Papers rdp2018-03, Reserve Bank of Australia.
    2. Colwell, Peter F & Sirmans, C F, 1993. "A Comment on Zoning, Returns to Scale, and the Value of Undeveloped Land," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 783-786, November.
    3. Kirdan Lees, 2019. "Quantifying the costs of land use regulation: evidence from New Zealand," New Zealand Economic Papers, Taylor & Francis Journals, vol. 53(3), pages 245-269, September.
    4. Murray, Cameron, 2019. "Marginal and average prices of land lots should not be equal: A critique of Glaeser and Gyourko’s method for identifying residential price effects of town planning regulations," OSF Preprints fnz7v, Center for Open Science.
    5. Edward Ludwig Glaeser & Joseph Gyourko, 2003. "The impact of building restrictions on housing affordability," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 21-39.
    Full references (including those not matched with items on IDEAS)

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