Changing supply elasticities and regional housing booms
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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 that housing supply elasticities have fallen markedly in recent years. Consistent with this, we ﬁnd that monetary policy shocks have a stronger eﬀect on house prices during the recent recovery than the previous boom. At the same time, building permits respond less. Finally, we ﬁnd that 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.