The Effect of Land Supply for New Homes on Residential Investment and House Prices

We use parcel-level data to provide new facts on the level and distribution of land available for residential development, focusing on New England housing markets between 2007 and 2021. Most buildable parcels are small, with large buildable parcels scarce in most geographic markets. Large buildable parcels are less available in more populous markets, become more scarce as populations grow, and have become more scarce over time. Markets with fewer large parcels experience higher price growth and lower residential development relative to price growth. We present evidence consistent with developer returns to scale in parcel size, meaning that fragmentation of buildable land across small, disjoint parcels increases house prices by lowering construction productivity and making development less responsive to demand. In counterfactual simulations from a simple calibrated model, we show that recombining small buildable parcels into larger ones, while holding the total amount of buildable land fixed, would increase supply, raise construction productivity, and reduce house price growth.