Working Paper: NBER ID: w26886
Authors: Edward Kung
Abstract: In this chapter, I discuss innovation and entrepreneurship in residential real estate and construction (housing). Based on R&D spending and patent statistics, housing does not appear to be a very innovative sector. But in the last two decades, there has been a significant increase in the amount of investment going to real estate technology companies. I discuss the companies and technologies which have drawn the most attention from investors. I then review the literature on two major innovation trends in housing: the growth of the internet as a tool for housing search, and the development of home-sharing platforms which allow homeowners to use their homes as short-term rentals. These innovations have likely increased the efficiency of housing markets, leading to higher quality matches between buyers and sellers, and more efficient utilization of space. However, the effects are hard to measure due to the difficulty of separating quality changes from price changes. In comparison to residential real estate, there appears to have been less recent innovation in residential construction. In many areas, residential construction is artificially constrained by local land use policies, and estimates from the literature suggest that relaxing these constraints could increase economic growth significantly. Finally, I discuss anti-competitive practices in real estate which may hinder entrepreneurship and the adoption of new innovations, and I discuss how innovation and entrepreneurship in other sectors may affect the housing market.
Keywords: No keywords provided
JEL Codes: O30; R31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| innovations (O35) | improved market efficiency (G14) |
| improved market efficiency (G14) | higher quality matches (L15) |
| restrictive policies (J18) | limited construction activity (L74) |
| relaxing constraints (C62) | significant economic growth (O49) |
| increase in homesharing (D16) | higher rental rates (R21) |
| increase in homesharing (D16) | higher housing prices (R31) |