How Responsive Is the Demand for Residential Land to Changes in Its Price?

Dick Voith is a senior vice president and principal at Econsult Corporation, Philadelphia. When he wrote this article, he was an economic advisor in the Research Department of the Philadelphia Fed. The dominant trend in metropolitan development in the 20th century was the increasing use of land per capita. As households moved to the suburbs, both houses and residential lots increased dramatically in size. These changes were direct consequences of higher incomes and lower transportation costs: people could afford to spend more on housing, and traveling longer distances between home and work became more feasible.1 As commuting distances lengthened, the supply of land deemed to be acceptable for residential development increased greatly, and this greater supply meant that residential land became more affordable. Not surprisingly, since rising incomes and lower transportation costs ublic policies from zoning to income-tax deductions for mortgage interest affect the price of residential land. In this article, Richard Voith’s estimates help measure the effect of public policies on land consumption in the United States.