Full Citation

Title: Supply Constraints Are Not Valid Instrumental Variables for Home Prices Because They Are Correlated with Many Demand Factors

Citation Type: Miscellaneous

Publication Year: 2015

ISBN:

ISSN:

DOI:

NSFID:

PMCID:

PMID:

Abstract: Economists sometimes assume that strictly regulated housing markets near mountains and oceans are expensive because they are costly places to build, not because they are nice places with productive firms and workers. U.S. data show this convenient assumption to be false. Housing supply has grown more in supply-constrained markets than elsewhere over recent decades, indicating constraints are correlated with demand growth. Supply constraints are highly correlated with productivity proxies such as historical education levels, immigration, and national employment growth in locally prevalent industries. The correlation between constraints and productivity growth invalidates common uses of constraints as part of instrumental variables for home prices. The relationship between supply constraints and price volatility is much weaker after accounting for observable demand factors.

Url: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2400833

User Submitted?: No

Authors: Davidoff, Thomas

Publisher: University of British Columbia (UBC) - Sauder School of Business

Data Collections: IPUMS USA

Topics: Other, Population Data Science

Countries: United States