Housing and Labor Market Dynamics in Growing Versus Declining Cities

51 Pages Posted: 4 Nov 2010 Last revised: 7 May 2015

Date Written: August 18, 2011

Abstract

This paper reconciles a debate on the nature of regional supply responses to demand shocks. Cities are found to exhibit dramatically different housing and labor market dynamics in response to local demand shocks, consistent with the hypothesis that the durable nature of the housing stock acts as a supply constraint in declining cities. These results imply that demand-driven models are appropriate in growing or stable cities, and models with supply constraints are more appropriate in declining cities. Failure to apply the correct class of models to a particular city will result in biased estimated employment, house price, and wage effects of both market-based demand shocks and demand-side stimulus policies.

Keywords: housing supply, urban decline, export prices, development policies

JEL Classification: R11, R31, R58

Suggested Citation

Larson, William D., Housing and Labor Market Dynamics in Growing Versus Declining Cities (August 18, 2011). Available at SSRN: https://ssrn.com/abstract=1702488 or http://dx.doi.org/10.2139/ssrn.1702488

William D. Larson (Contact Author)

Federal Housing Finance Agency ( email )

400 7th Street SW
Washington, DC 20552
United States

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