The Federal Reserve Board eagle logo links to home page
Finance and Economics Discussion Series
Finance and Economics Discussion Series logo links to FEDS home page Job Creation and Housing Construction: Constraints on Metropolitan Area Employment Growth
Raven E. Saks

Abstract: Differences in the supply of housing generate substantial variation in housing prices across the United States. Because housing prices influence migration, the elasticity of housing supply also has an important impact on local labor markets. Specifically, an increase in labor demand will translate into less employment growth and higher wages in places where it is relatively difficult to build new houses. To identify metropolitan areas where the supply of housing is constrained, I assemble evidence on housing supply regulations from a variety of sources. In places with relatively few barriers to construction, an increase in housing demand leads to a large number of new housing units and only a moderate increase in housing prices. In contrast, for an equal demand shock, places with more regulation experience a 17 percent smaller expansion of the housing stock and almost double the increase in housing prices. Furthermore, I find that housing supply regulations have a significant effect on local labor market dynamics. Whereas a 1 percent increase in labor demand generally leads to a 1 percent increase in the long-run level of employment, the employment response is less than 0.8 percent in places where the housing supply is highly constrained.

Keywords: Housing supply, zoning regulations, local labor markets

Full paper (366 KB PDF)

Home | FEDS | List of 2005 FEDS papers
To comment on this site, please fill out our feedback form.
Last update: October 27, 2005