Fundamentals behind house prices

Li, Bin; Zeng, Zhixiong

doi:10.1016/j.econlet.2010.04.041

Cited by 10 publications

(8 citation statements)

References 6 publications

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“…Hornstein argues that this model has the clear potential to account for the trend in prices of new houses, although it cannot account for the differential price trends in the market for new and existing houses. Li and Zeng (2010) employ a two-sector neoclassical growth model with housing to explain a rising real house price driven by a comparably low technical progress in the construction sector. Poterba (1984) employs a dynamic model of the housing sector to study how inflation affects the real house price and the size of the housing stock.…”

Section: A2 a Brief Review Of The Theoretical Literaturementioning

confidence: 99%

No Price Like Home: Global House Prices, 1870–2012

Knoll

Schularick

Steger

2017

American Economic Review

377

258

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How have house prices evolved in the long-run? This paper presents annual house price indices for 14 advanced economies since 1870. Based on extensive data collection, we are able to show for the first time that house prices in most industrial economies stayed constant in real terms from the 19th to the mid-20th century, but rose sharply in recent decades. Land prices, not construction costs, hold the key to understanding the trajectory of house prices in the long-run. Residential land prices have surged in the second half of the 20th century, but did not increase meaningfully before. We argue that before World War II dramatic reductions in transport costs expanded the supply of land and suppressed land prices. Since the mid-20th century, comparably large land-augmenting reductions in transport costs no longer occurred. Increased regulations on land use further inhibited the utilization of additional land, while rising expenditure shares for housing services increased demand.

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Section: A2 a Brief Review Of The Theoretical Literaturementioning

confidence: 99%

No Price Like Home: Global House Prices, 1870–2012

Knoll

Schularick

Steger

2017

American Economic Review

377

258

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“…Importantly 24 Online-Appendix A.3 provides a complete analytical steady state characterization. 25 Throughout, superscript (*) denotes long run equilibrium values of endogenous variables. 26 In Appendix 7.3, we show that…”

Section: Long Run Equilibriummentioning

confidence: 99%

Das House-Kapital: A Long Term Housing & Macro Model

Grossman

Steger²

2017

IMF Working Papers

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There are, by now, several long term, time series data sets on important housing & macro variables, such as land prices, house prices, and the housing wealth-to-income ratio. However, an appropriate theory that can be employed to think about such data and associated research questions has been lacking. We present a new housing & macro model that is designed specifically to analyze the long term. As an illustrative application, we demonstrate that the calibrated model replicates, with remarkable accuracy, the historical evolution of housing wealth (relative to income) after World War II and suggests a further considerable increase in the future. The model also accounts for the close connection of house prices to land prices in the data. We also compare our framework to the canonical housing & macro model, typically employed to analyze business cycles, and highlight the main differences.

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“…We are not the first to highlight the importance of disaggregated productivity improvements, and changes in the allocation of inputs across sectors, to explain movements in housing prices and wealth. Some notable examples are Davis and Heathcote (2005), Kahn (2008), Iacoviello and Neri (2010), Li and Zeng (2010), Moro andNuno (2012), and, more recently, Favilukis et al (2015) and Grossmann and Steger (2016). In particular, Moro and Nuno provide some evidence that a fall in the relative TFP in the construction sector may be responsible for a surge in housing prices, and Grossmann and Steger highlight the scarcity of land as a contributing factor for the increase in wealth-to-income ratios.…”

Section: Introductionmentioning

confidence: 99%

“…In particular, Moro and Nuno provide some evidence that a fall in the relative TFP in the construction sector may be responsible for a surge in housing prices, and Grossmann and Steger highlight the scarcity of land as a contributing factor for the increase in wealth-to-income ratios. Li and Zeng (2010) develop a two-sector neoclassical growth model with housing and show that sectoral differences in productivities could explain the secular growth of housing prices. They show that there exists a negative relation, off the balanced growth path, between house prices and real interest rates as long as the housing sector is more labor intensive.…”

Section: Introductionmentioning

confidence: 99%

The housing cost disease

Borri

Reichlin

2018

Journal of Economic Dynamics and Control

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Using a simple two-sector life cycle economy with housing services and bequests, we show that a rising labor efficiency in the general economy relative to the construction sector can go a long way toward explaining a significant fraction of the rising trends in wealth-to-income ratios, housing wealth, and wealth inequality, that have been documented in most advanced countries at least since the '70s. This mechanism (which we label housing cost disease) has adverse effects on social welfare when the Planner puts sufficient weight on the less wealthy households.

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Fundamentals behind house prices

Cited by 10 publications

References 6 publications

No Price Like Home: Global House Prices, 1870–2012

No Price Like Home: Global House Prices, 1870–2012

Das House-Kapital: A Long Term Housing & Macro Model

The housing cost disease

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