Housing Supply in the Presence of Informality

We study housing supply in markets where informal housing is common. Using a combination of census and satellite data, we estimate housing supply for more than 90 metropolitan areas in Brazil. We find that widespread informal housing increases the housing supply elasticity, partially offsetting the downward pressure of geographical constraints. Our empirical approach is guided by a monocentric city model that includes informal housing. Our identification strategy relies on the use of two novel instruments, combining demographic data and public land ownership. We use the supply elasticity estimates to forecast the response of future housing prices to natural population growth.

Housing supply elasticity and growth: evidence from Italian cities

This paper examines the impact of housing supply elasticity on urban development. Using data for a sample of roughly one hundred Italian main cities observed over 40 years, we first estimate housing supply elasticities at the city level, measured as the correlation between the changes in the housing stock and in the house prices. Second, we show that differences in the elasticity of housing supply may determine the extent to which a demand shock translates into more intense employment growth or more expensive houses. To address endogeneity of housing supply elasticity, we exploit a synthetic measure of physical constraints to residential development as instrumental variable. We find that an exogenous increase in labor demand determines a rise of employment and house prices; however, in cities with a less elastic housing supply, the impact on economic growth is significantly lessened while the effects on house prices are larger.

Housing Supply Elasticity and Rent Extraction by State and Local Governments

Governments may extract rent from private citizens by inflating taxes and spending on projects benefiting special interests. Using a spatial equilibrium model, I show that less elastic housing supplies increase governments’ abilities to extract rents. Inelastic housing supply, driven by exogenous variation in local topography, raises local governments’ tax revenues and causes citizens to combat rent seeking by enacting laws limiting the power of elected officials. I find that public sector workers, one of the largest government special interests, capture a share of these rents through increased compensation when collective bargaining is legal or through corruption when collective bargaining is outlawed. (JEL H71, H72, J45, J52, R31, R51)

International Real Estate Review

Housing prices in Hong Kong have gained international attention. This study suggests that the housing supply may be insufficient. Consistent with previous studies, we confirm that merely increasing the land supply may not increase the housing supply. We also find preliminary evidence for widening income inequality, which, when combined with unavailability, can lead to unaffordability in the housing market. Given the current housing supply elasticity with respect to price, Hong Kong is not more volatile than major cities in the United States. Thus, by improving housing availability and thereby increasing housing supply elasticity, this could effectively decrease housing price volatility.