The Economic Implications of Housing Supply
Journal of Economic Perspectives
vol. 32,
no. 1, Winter 2018
(pp. 3-30)
(Complimentary)
Abstract
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.Citation
Glaeser, Edward, and Joseph Gyourko. 2018. "The Economic Implications of Housing Supply." Journal of Economic Perspectives, 32 (1): 3-30. DOI: 10.1257/jep.32.1.3Additional Materials
JEL Classification
- D14 Household Saving; Personal Finance
- R21 Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand
- R23 Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics
- R31 Housing Supply and Markets
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