New measurement and new evidence for supply elasticity and within-city heterogeneity of price movement

Abstract

Within-city heterogeneity of property price movement is massively documented but not well explained. Price elasticity of supply drives property prices to appreciate variously across cities, but its role becomes unclear for neighborhoods of close substitution. The lack of refined measurement of supply elasticity at neighborhood level hinders further research. This paper suggests government land bank (land owned by the government but not sold or allocated yet) is a better measurement than geographical constraint of Saiz (2010). With evidence from Hong Kong, it is found that neighborhoods with more government land bank (more supply elastic) experience less price appreciation during market boom. On the contrary, geographical constraint misleadingly shows supply elasticity cannot explain within-city heterogeneity of price movement. The contribution of this research is twofold: propose a new measurement of supply elasticity for neighborhoods and provide robust evidences that neighborhoods with lower supply elasticity do appreciate more during market boom.