The Economic Implications of Housing Supply

In this essay, we review the basic economics of housing supply and the functioning of US housing markets to better understand the distribution of home prices, household wealth, and the spatial distribution of people across markets. We employ a cost-based approach to gauge whether a housing market is...

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Bibliographic Details
Published in:The Journal of economic perspectives Vol. 32; no. 1; pp. 3 - 30
Main Authors: Glaeser, Edward, Gyourko, Joseph
Format: Journal Article
Language:English
Published: Nashville American Economic Association 01.01.2018
Subjects:
1985-2013
Construction costs
Cost estimates
Costs
Economic costs
Economic theory
Externality
Households
Housing
Housing costs
Housing market
Housing needs
Housing prices
Housing supply
Incentives
Land use
Market prices
Prices
Production
Production costs
Productivity
Regulation
Relocation
Residential buildings
Residential patterns
Spatial analysis
Supply & demand
Taxation
Wealth
Wealth distribution
United States > US
ISSN:0895-3309, 1944-7965
Online Access:Get full text
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Summary:In this essay, we review the basic economics of housing supply and the functioning of US housing markets to better understand the distribution of home prices, household wealth, and the spatial distribution of people across markets. We employ a cost-based approach to gauge whether a housing market is delivering appropriately priced units. Specifically, we investigate whether market prices (roughly) equal the costs of producing the housing unit. If so, the market is well-functioning in the sense that it efficiently delivers housing units at their production cost. The gap between price and production cost can be understood as a regulatory tax. The available evidence suggests, but does not definitively prove, that the implicit tax on development created by housing regulations is higher in many areas than any reasonable negative externalities associated with new construction. We discuss two main effects of developments in housing prices: on patterns of household wealth and on the incentives for relocation to high-wage, high-productivity areas. Finally, we turn to policy implications.
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ISSN:0895-3309
1944-7965
DOI:10.1257/jep.32.1.3