We provide empirical evidence that increases in the periodic costs of housing lead to a larger supply response than price increases of the same magnitude. We rationalize this differential in supply responsiveness with an amplification mechanism arising from adjustments of capitalization rates to changes in the periodic costs. Buyers expect further periodic cost increases at places that have experienced a positive demand shock. We document that the amplification of the housing supply price elasticity is less pronounced in geographically constrained and tightly regulated neighborhoods and in areas having more sophisticated buyers.Our findings hold important lessons for public policies affecting the periodic cost of housing, such as rent control and housing subsidies.

No abstract

We empirically analyse the impact of human capital and housing supply on urban growth in the US and China. Integrating the heterogeneity of housing supply helps determine how a positive human capital shock translates into more population, higher house prices, or higher wages. To causally estimate this effect, we use a rich urban-level data set, choose our controls using the post-double-selection methodology, and instrument human capital with the per capita number of historical educational institutions. We find that human capital positively impacts urban population, house price and wage growth. While an elastic housing supply reinforces the impact on urban growth, it reduces house price growth and wage growth. Our results infer that human capital increases productivity in both countries and acts as an amenity only in the US.