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Real Estate Resources Fast Facts, Last Updated:09/10/2010 The long-run price elasticity of supply isquite high. George Fallis estimates it as 8.2 (Fallis, G. 1985),but in the short run supply tends to be very price inelastic.Supply price elasticity depends on the elasticity of substitutionand supply restrictions. There is significant substitutability bothbetween land and materials, and between labour and materials. Inhigh value locations, multi-story concrete building are typicallybuilt to reduce the amount of expensive land used. As labour costsincreased since the 1950s, new materials and capital intensivetechniques have been employed to reduce the amount of relativelyexpensive labour used. However supply restrictions cansignificantly effect substitutability. In particular the lack ofsupply of skilled labour (and labour union requirements), canconstrain the substitution from capital to labour. Landavailability can also constrain substitutability if the area ofinterest is delineated (that is, the larger the area, the moresuppliers of land, and the more substitution that is possible).Land use controls such as zoning bylaws can also reduce landsubstitutability. |
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