ECONOMIC FUNDAMENTALS IN LOCAL HOUSING MARKETS: EVIDENCE FROM U.S. METROPOLITAN REGIONS

TLDR

The study examines how national and regional economic conditions affect single‑family housing prices, vacancies, and construction activity. The authors use impulse‑response simulations to show that market reactions to shocks lag and vary across local parameters. The model confirms that regional economic conditions, income, and employment drive local housing markets, that vacancies influence prices and supply, that cost and regulatory factors affect new supply, and that local regulation shapes market responses to income shocks.

Abstract

ABSTRACT This paper investigates the effects of national and regional economic conditions on outcomes in the single‐family housing market: housing prices, vacancies, and residential construction activity. Our three‐equation model confirms the importance of changes in regional economic conditions, income, and employment on local housing markets. The results also provide the first detailed evidence on the importance of vacancies in the owner‐occupied housing market on housing prices and supplier activities. The results also document the importance of variations in materials, labor and capital costs, and regulation in affecting new supply. Simulation exercises, using standard impulse response models, document the lags in market responses to exogenous shocks and the variations arising from differences in local parameters. The results also suggest the importance of local regulation in affecting the pattern of market responses to regional income shocks.