OECD study quantifies housing supply responsiveness and policy drivers
A new OECD working paper estimates long-term elasticities of housing supply to prices in OECD countries. It finds that restrictive land-use regulation and tighter rent controls significantly weaken supply responsiveness, leading to higher house price sensitivity to demand and income.
Restrictive policies curb housing supply
The paper estimates long-term elasticities of housing supply to prices across OECD countries, contributing new analysis to the debate on housing market responsiveness.
It finds a significant association between weaker supply responsiveness and a proxy measure for more restrictive land-use regulation.
Besides, tighter rent controls are linked with lower supply elasticities.
In turn, weak supply responsiveness implies that house prices rise more following stronger demand.
The study also highlights that the sensitivity of house prices to household income is higher in countries that provide larger amounts of tax relief for homeowners.
These findings underscore the critical role of policy settings in shaping housing market dynamics and affordability outcomes.
Economic costs of rigid housing markets
The trend rise of house prices in many OECD countries has undermined housing affordability, with a recent estimate suggesting it now takes more than 10 years of annual income to buy a house, up from 6.8 years in the mid-1980s.
A sufficiently elastic supply ensures the economy responds to housing needs without large price increases, thus underpinning affordability.
Regulations that restrict housing supply can entail large economic costs, impeding worker movement to high-income areas and weakening convergence in human capital and per capita income.
Such misallocation has been estimated to reduce US output by 36% over 1964-2009.