Economie et Statistique / Economics and Statistics n° 500-501-502 - 2018 Does issuing building permits reduce the cost of land? An estimation based on the demand for building land in France

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In France, the value of built land increased from 45% to almost 260% of gross domestic product between 1998 and 2006, stabilizing at slightly lower levels after the crisis (222% in 2016). This inflation of land price has affected houseprices, which have also seen high inflation. To what extent does the issuance of building permits relax this constraint on available land and so reduce its price? It is essential to analyse this mechanism to evaluate the effectiveness of policies designed to promote construction in order to limit the growth of household expenditure on housing.

Using a theoretical model seeking the best match between heterogeneous households (in terms of preferences) and heterogeneous building plots (in terms of location), an inverse demand function for building land (price) is estimated by instrumenting construction (quantity) by variables relating to the type of land, its topography, the agricultural opportunity cost and the presence of industrial brownfields. The data are drawn mainly from the building land price survey (EPTB, Ministère de la transition écologique et solidaire) 2006-2014 and the Sit@del2 information system on building permits.

This study highlights the significant, albeit modest, impact of policies aimed at lowering the price of land by increasing the construction of new housing units. To make these policies more effective, the results argue for targeting construction in relatively denser areas closer to urban centres and jobs. They also highlight the interest of an increase in available floor area, while quality of construction is particularly appreciated by households.