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Housing supply and housing bubbles (2008)
| Venue: | Journal of Urban Economics |
| Citations: | 110 - 13 self |
BibTeX
@ARTICLE{Glaeser08housingsupply,
author = {Edward L. Glaeser and Joseph Gyourko and Albert Saiz},
title = {Housing supply and housing bubbles},
journal = {Journal of Urban Economics},
year = {2008}
}
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Abstract
Like many other assets, housing prices are quite volatile relative to observable changes in fundamentals. If we are going to understand boom-bust housing cycles, we must incorporate housing supply. In this paper, we present a simple model of housing bubbles which predicts that places with more elastic housing supply have fewer and shorter bubbles, with smaller price increases. However, the welfare consequences of bubbles may actually be higher in more elastic places because those places will overbuild more in response to a bubble. The data show that the price run-ups of the 1980s were almost exclusively experienced in cities where housing supply is more inelastic. More elastic places had slightly larger increases in building during that period. Over the past five years, a modest number of more elastic places also experienced large price booms, but as the model suggests, these booms seem to have been quite short. Prices are already moving back towards construction costs in those areas. We thank Jose Scheinkman, Andrei Shleifer, participants at the University of British Columbia’s 2008 Summer
Keyphrases
housing bubble elastic place housing supply andrei shleifer data show many asset simple model observable change modest number housing price welfare consequence price increase jose scheinkman boom-bust housing cycle british columbia towards construction cost volatile relative price run-up elastic housing supply large price boom
