Intra-Metropolitan Housing Supply Elasticity in Australia: A Spatial Analysis of Adelaide

Abstract

This article estimates the supply elasticity of new housing for local government areas (LGAs) within Adelaide in South Australia by employing the urban growth model developed originally by Meyer and Somerville. In particular, we extend Gitelman and Otto's subsequent work in several ways. We employ narrower time intervals and consider different types of residential accommodation. Moreover, we include other geo-economic variables that potentially affect new supply, such as a spatially lagged dependent variable that assesses how supply conditions in one suburban region may subsequently influence supply in adjoining locations. Our findings suggest that the elasticity of new supply is up to 15 per cent over 10 quarters and thus sensitive to price changes, albeit lagged. Furthermore, we find that an LGA's land area and proximity to the coast are positively correlated with new housing supply, while its residents' average incomes and the level of building approval activity in neighbouring LGAs are negatively correlated with new supply. These findings have several potential implications for Metropolitan planning strategies.