Scandinavian Working Papers in Economics

Working Paper Series,
Royal Institute of Technology, Department of Real Estate and Construction Management & Banking and Finance

No 20/9: Is smaller housing size a consequence of land price policies and building permit regulations?

Sviatlana Engerstam (), Abukar Warsame () and Mats Wilhelmsson ()
Additional contact information
Sviatlana Engerstam: Department of Real Estate and Construction Management, Royal Institute of Technology, Postal: Division of Real Estate Economics and Finance, Teknikringen 10B, 100 44 Stockholm, Sweden
Abukar Warsame: Department of Real Estate and Construction Management, Royal Institute of Technology, Postal: Division of Real Estate Economics and Finance, Teknikringen 10B, 100 44 Stockholm, Sweden
Mats Wilhelmsson: Department of Real Estate and Construction Management, Royal Institute of Technology, Postal: Division of Real Estate Economics and Finance, Teknikringen 10B, 100 44 Stockholm, Sweden

Abstract: We can observe a trend of smaller housing units in new residential construction in many countries with rapid urban growth. It is of interest to recognize the driving forces that are behind this trend because if it sustains in the long run, as both positive and negative consequences for sustainable development of the housing market can be expected. Therefore, the purpose of this paper is to examine the main underlying factors affecting the average size of apartments in new construction in metropolitan areas in Sweden. Panel data methodology applied in the analysis. The model uses the average size of an apartment in new housing construction as a function of the changes in the population, apartment prices, mortgage interest rates, rents, land prices, building permits per capita. We estimate the interrelationship between apartment size and these variables through simultaneous equation models. The data covers both the rental and the cooperative housing sectors over 24-28 years depending on availability of variables. The analysis demonstrates that the land values and building policies, along with market fundamentals, are the underlying factors that affect the average size of an apartment in new residential construction. Opposite to previous studies that focus on explaining the number of new housing, we analyze the average size of new housing units and factors that affect it on an aggregated level.

Keywords: Apartment size; Housing market; New construction; Land and Building policies

JEL-codes: R14; R31; R52

22 pages, June 16, 2020

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