Wednesday, 4 April 2012

Land use regulation and house price volatility

In a few recent posts I have mentioned the link between higher house price volatility and non-responsive housing supply (e.g. due to restrictive land use regulations). Interesting to see that a recent Journal of Urban Economics paper by Haifang Huanga and Yao Tang suggests this link has become more pronounced in the US:

Abstract: "In a sample covering more than 300 cities in the US from January 2000 to July 2009, we find that more restrictive residential land use regulations and geographic land constraints are linked to larger booms and busts in housing prices. The natural and man-made constraints also amplify price responses to the subprime mortgage credit expansion during the decade, leading to greater price increases in the boom and subsequently bigger losses. Contrary to prior literature, our findings indicate a significant link between supply inelasticity and price declines during the bust, whereas Glaeser et al. (2008) found little evidence of such a relationship from an earlier downturn from 1989 to 1996."

[Preprint available here for those without journal access]

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