Original Article
The Impact of Supply Constraints on House Prices in England
We are grateful to Paul Cheshire for thorough discussions, detailed feedback and encouragement. We also thank Steve Gibbons, Ian Gordon, Andrew Haughwout, Don Haurin, Pat Hendershott, Martin Hoesli, Tim Leunig, Geoffrey Meen, John Muellbauer, Henry Overman, Maarten van Rooij, Jan Rouwendal and conference/seminar participants at the Urban Economics Association session of the 2009 North American Meetings of the RSAI (San Francisco), CPB (The Hague), ENHR conference (London), SERC/LSE, ICHUE conference (Reading), NAKE Day (Utrecht), SERC conference (LSE), University of Geneva, and the Department for Communities and Local Government for helpful comments and suggestions. We thank the Department for Communities and Local Government for kindly providing the regulatory raw data. We thank Richard Topf, Tim Leunig, Paul Cheshire, Yiannis Kaplanis and Matti Sarvimaki for providing additional data. Finally, we thank the Editor, Frederic Vermeulen, for helpful guidance and two anonymous referees for insightful comments and valuable suggestions. Philippe Bracke, Sejeong Ha, Guilherme Resende, Rosa Sanchis-Guarner-Herrero and Ted Pinchbeck provided excellent research assistance. This research was made possible in part by a grant from the English National Housing Planning Advice Unit (NHPAU) Research Innovation Fund. Support from the Spatial Economics Research Centre (SERC) is also gratefully acknowledged. All errors are the sole responsibility of the authors.
Abstract
We test the theoretical prediction that house prices respond more strongly to changes in local earnings in places with tight supply constraints using a unique panel dataset of 353 Local Planning Authorities in England between 1974 and 2008. Exploiting exogenous variation from a policy reform, vote shares and historical density to identify the endogenous constraints-measures, we find that: regulatory constraints have a substantive positive impact on the house price-earnings elasticity; the effect of constraints due to scarcity of developable land is largely confined to highly urbanised areas; and uneven topography has a quantitatively less meaningful impact.
