Economie et Statistique / Economics and Statistics n° 500-501-502 - 2018Housing and housing markets

Economie et Statistique / Economics and Statistics
Paru le : Paru le 29/10/2018
Jean-Sauveur Ay, Jean Cavailhès, Mohamed Hilal and Julie Le Gallo
Economie et Statistique / Economics and Statistics - October 2018
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Sommaire

Does issuing building permits reduce the cost of land? An estimation based on the demand for building land in France

Jean-Sauveur Ay, Jean Cavailhès, Mohamed Hilal and Julie Le Gallo

Economie et Statistique / Economics and Statistics

Paru le : 29/10/2018

Consulter

Abstract

While the aggregate value of constructed land rose from 45% to nearly 260% of gross domestic product in France between 1998 and 2006, stabilising after the crisis, regulatory constraints on construction are used to explain the rise in land prices, which are weighing on production costs for new housing units. Here we analyse to what extent the issuance of building permits reduces the price of land. We first propose a theoretical assignment model of heterogeneous households (in terms of preferences) to heterogeneous building plots (in terms of location) to study the effects of construction on the price of land. We then estimate the inverse demand for building land by instrumenting construction (quantity) by instrumental variables relating to the nature of the land, to its topography, to the agricultural opportunity cost and to the presence of industrial brownfields. A 1% increase in the number of permits issued resulted in a moderate decrease in land prices of 0.3%, on average. The effect, which differs according to the type of construction, increases with proximity to dense zones.

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To cite this article

Ay, J.-S., Cavailhès, J., Hilal, M. & Le Gallo, J. (2018). Does issuing building permits reduce the cost of land? An estimation based on the demand for building land in France. Economie et Statistique / Economics and Statistics, 500-501-502, 45–67.
https://doi.org/10.24187/ecostat.2018.500t.1945