Estimating housing supply elasticities across Sydney LGAs

The real estate industry plays a pivotal role in the Australian economy. This has led to a debate regarding the determinants of real house price changes. This thesis uses annual data over the period 1991 to 2015 to estimate supply elasticities across metropolitan Sydney, at the local government level. Our results indicate that the average supply elasticity for all types of dwellings is inelastic, with the average estimated elasticity less than unity. Disaggregating the results between strata and non-strata properties provides more detail into the market forces driving the real house price. For instance, we find that about one-fifth of local government areas (LGAs) have estimated elasticities greater than one, implying that they exhibit elastic demand. On the other hand, the supply elasticity of non-strata properties across all 43 LGAs is inelastic. Having estimated supply elasticities, we also investigate which explanatory factors contribute to explaining the slope of the housing supply curves across the Sydney metropolitan area. We find that geographic factors, development approval time and population density all play significant roles in determining the supply elasticities.