The amplifying effect of capitalization rates on housing supply

We provide empirical evidence that increases in housing rental income lead to a larger supply response than price of the same percentage value. rationalize this differential responsiveness with an amplification mechanism arising from downward revision capitalization rates following increase. document elasticity is less pronounced geographically constrained and tightly regulated neighborhoods areas having more sophisticated investors. Our findings hold valuable lessons for public policies affecting income, such as rent control subsidies.