Housing supply and price reactions : a comparison approach to Spanish and Italian Markets

Italian and Spanish property markets have experienced a sustained period of growth since the mid 1990s until 2008 when both markets fell into rapid decline due to the worldwide Financial Economic Crisis (FEC). Although the economic impact of the FEC was similar, each country experienced different reactions in their respective real estate markets, changes on house prices, building construction or planning regulations. This paper presents a new supply equation for Italian and Spanish regional markets. A pool EGLS/IV 2-step GLS method are used to account for cross-section heteroskedasticity with fixed effects in order to control space differences. The analysis has been developed at regional level and shows the variation in responsiveness of new housing supply to prices by region. Results show long term price supply elasticity by regions, the negative impact of exogenous shock and suggest that house markets follow similar patterns in several regions with elastics responses in most territories.