New housing supply: what do we know and how can we learn more?

This paper reviews the literature on new housing supply. The paper starts by summarizing the results of the empirical studies on housing supply, showing that overall these studies reject the hypothesis of a perfectly elastic housing supply and reveal that housing supply is negatively related with financial costs, inflation and sales delay while showing inconclusive results with respect to the construction costs. In addition, we review a recent branch of the literature on housing supply that uses strategic interaction models. There is evidence that the housing market is not well described by the perfect competition model. Thus, a deeper understanding of housing supply can be achieved by considering theoretical models that take into account the strategic interaction between land developers and by using data where the unit of analysis is the land developer.