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Construction elasticities and land availability: a two-stage least-squares model of housing supply using the variable elasticity approach

Pryce, G. (1999) Construction elasticities and land availability: a two-stage least-squares model of housing supply using the variable elasticity approach. Urban Studies, 36 (13). pp. 2283-2304. ISSN 0042-0980 (doi:10.1080/0042098992421)

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Abstract

This paper uses data at English local authority district level to construct a simultaneous equation model of housing construction that compares elasticit ies of supply between two cross-sec tional periodsÐ 1988 (boom) and 1992 (slump)Ð using the variable elasticit y approach. Econometric issues raised by earlier supply studies are discussed and tested for. The paper also discusses the rationale for, and tests the existen ce of, a backward-bending supply relation ship, and ® nds that supply is concave in both periods, and `bends backwards’ during the boom. Evidence of a structural break between boom and bust is found, producing average price elasticit ies of supply noticeab ly smaller in the boom (0.58) than in the slump (1.03), with considerable variatio n across disticts. Land supply elasticit ies are found to be more stable over time, and marginally greater in the boom (0.75) than in the slump (0.71). The paper also calculates second partial derivativ es based on the whole demand± supply system to obtain estimates of the impact of land release on new house prices.

Item Type:Article
Status:Published
Refereed:Yes
Glasgow Author(s):Pryce, Prof Gwilym
Authors: Pryce, G.
Subjects:H Social Sciences > H Social Sciences (General)
College/School:College of Social Sciences > School of Social and Political Sciences > Urban Studies
Journal Name:Urban Studies
ISSN:0042-0980
ISSN (Online):1360-063X

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