Structural Estimates of Housing Supply Elasticity across Chinese Cities

We present a structural model of urban growth in a spatial equilibrium setting to aid the separation of the effects of demand shocks from those of the spatial variation in housing supply elasticity. The model is applied to an analysis of urban growth across Chines cities between 1998 and 2004, to evaluate the determinants of housing supply elasticity. The variation in supply, via urban expansion or price elasticity, is found to play a greater role in accounting for cross-city differences in population growth, but a lesser role for the differences in wage-rate and price growth, than do the demand shocks. The housing supply elasticity is lower in denser and more expensive cities but greater in cities of higher political status or with denser roads. Furthermore, our results show that local governments can raise the housing supply elasticity by lowering regulatory costs and improving land-use equity.