Urban Economics and Planning

Urban Economics and Planning

Estimation and Analysis of Substitution Elasticity Between Land and Capital Inputs in Housing Production in Khorramabad City and Its Impact on Urban Development

Document Type : Case Study

Authors
1 Department of Economics, Faculty of Management and Economics, Lorestan University, Khorramabad, Iran.
2 Department of Economics, National Institute for Oceanographic Research, Tehran, Iran.
Abstract
The unique characteristics of housing—alongside the essential need for shelter and its distinctive position in the macroeconomy—have made it one of the most important productive goods in any economy. Therefore, understanding how housing production inputs, particularly land and capital, are utilized, as well as recognizing developers' responses to relative changes in input prices, is of considerable importance. The elasticity of substitution between land and capital is an indicator that reflects producers' flexibility when faced with changes in input prices. The present study was conducted with the aim of estimating the elasticity of substitution between land and capital inputs in housing production in the city of Khorramabad. The research methodology is descriptive-analytical, and the study is applied in nature. The statistical population included 110 urban blocks within Khorramabad, which, after review, were reduced to 100 blocks. The data were collected in 2025 through field surveys using a stratified sampling method. The elasticity of substitution between land and capital inputs was estimated using the ordinary least squares (OLS) method for CES and VES functions at the levels of the entire city, the city center, and the urban fringe. The findings indicated that the elasticity of substitution was less than one in all estimates. This implies that in response to a relative increase in land prices, building heights (as a proxy for capital intensity) increase by a smaller percentage, and capital serves only as a limited substitute for land in housing production in the Khorramabad city.
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Articles in Press, Accepted Manuscript
Available Online from 11 June 2026

  • Receive Date 20 April 2026
  • Revise Date 08 June 2026
  • Accept Date 11 June 2026