Local land-use policy interventions and housing supply elasticity: the case of Finland

Abstract This article examines the long-run stock elasticity of housing supply and factors associated with their cross-city variation across 22 Finnish cities, a context characterized by strong municipal control over land use. We adopt a two-step approach. First, using time-series econometric methods on quarterly data from 1988 to 2020, we find that the long-run stock elasticity varies substantially across cities, ranging from 0.3 to 2.2. Second, drawing on novel city-level indices constructed to capture differences in land-use policy restrictiveness, we examine how the local land-use policy environment relates to supply elasticity. Our cross-sectional analysis indicates that cities with more restrictive land-use policy interventions—especially those associated with higher indirect costs of housing development—exhibit lower supply elasticities. Together with city size and geographical constraints, these interventions are associated with approximately 70% of the observed cross-city variation in elasticity. This suggests that delays and uncertainty in planning and development may be relevant areas for further evaluation for local public authorities when considering housing supply responsiveness.