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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_v1, Center for Open Science.
    • Handle: RePEc:osf:osfxxx:4jmb8_v1
    DOI: 10.31219/osf.io/4jmb8_v1
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    References listed on IDEAS

    as
    1. 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.
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