Norges Bank

Working Paper

Changing supply elasticities and regional housing booms

Author:
Knut Are Aastveit, Bruno Albuquerque and André Anundsen
Series:
Working Paper
Number:
8/2019

Recent developments in US house prices mirror those of the 1996-2006 boom, but the recovery in construction activity has been weak. Using data for 254 US metropolitan areas, we show hat housing supply elasticities have fallen markedly in recent years. Housing supply elasticities have declined more in areas where land-use regulation has tightened the most, and in areas that experienced the sharpest housing busts. A lowering of the housing supply elasticity implies a strengthened price responsiveness to demand shocks, whereas quantity reacts less. Consistent with this, we find that an expansionary monetary policy shock has a considerably stronger effect on house prices during the recent recovery than during the previous housing boom. At the same time, building permits respond less.

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ISSN 1502-8190 (online)

Published 12 April 2019 11:00
Published 12 April 2019 11:00