October 1, 2012

The Impact of Supply Constraints on House Prices in England

We explore the impact of different types of supply constraints on house prices in England by exploiting a unique panel dataset of 353 local planning authorities ranging from 1974 to 2008.
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Using exogenous variation from a policy reform, vote shares and historical density to identify the endogenous constraints-measures, we find that:

  1. Regulatory constraints have a substantive positive long-run impact on the house price-earnings elasticity;
  2. The effect of constraints due to scarcity of developable land is largely confined to highly urbanised areas;
  3. Uneven topography has a quantitatively less meaningful impact;
  4. The effects of supply constraints are greater during boom than bust periods.


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