Finance and Economics Discussion Series (FEDS)
February 2024
Land development and frictions to housing supply over the business cycle
Hyunseung Oh, Choongryul Yang, Chamna Yoon
Abstract:
Using a novel data set of U.S. residential land developments, we document that the average time to develop residential properties—which includes both the time spent preparing land infrastructures and construction—is about three years, consistent with sizable lags in housing investment projects. We show that the time to develop is highly dispersed across locations, a finding that helps quantify the housing supply elasticity that is relevant for assessing local housing variations over the business cycle. We also show that incorporating long and dispersed time to develop into an otherwise standard housing investment model helps rationalize some empirical facts on the housing market. Our model implies that policies to boost housing supply are less effective in immediately stabilizing house prices for regions where land development takes a long time.
Keywords: house price dynamics, housing supply, residential investment
DOI: https://doi.org/10.17016/FEDS.2024.010
PDF: Full Paper
Related Materials: Accessible materials (.zip)
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