www.econstor.eu House Prices, Housing Development Costs, and the Supply of New Single-Family Housing in German Counties and Cities

This paper employs panel data on 413 German counties and cities from 2004 to 2009 to investigate the supply of new single-family housing in local housing markets. New local housing supply is measured by the annual number of construction permits in relation to the existing single-family housing stock. This supply indicator is econometrically related to existing home prices and new housing development costs, which include the costs of housing construction and vacant land in a given location. The results suggest that both higher prices for existing homes and recent increases in development costs are positively associated with local single-family home permit rates. Instead, higher levels of development costs turn out to dampen construction activity. The average local price elasticity of new single-family home supply is considerably less than one, with surprising differences across the urban hierarchy.