Essays on Housing and Land Economics.

Abstract

This dissertation comprises three chapters examining the economics of the housing and land markets. In “A Model of Sales, Prices, and Liquidity in the Housing Market,” I use a search and matching model of the housing market to address three main questions. First, what model of search and price determination best describes the housing market? Second, can a general equilibrium model generate the observed correlations between housing market variables? Third, what shocks have driven the historical behavior of the housing market? A model of competitive search is more likely than a model featuring random search and bargaining. Simulated data from the model qualitatively matches the correlations between housing market time series. Finally, the recent housing boom and bust were associated with an increase and subsequent decrease in the pool of eligible buyers, in addition to unrealized expectations of higher future productivity, the estimated size of which suggests a role for unwarranted optimism on the part of housing market participants.

In “Metropolitan Land Values and Housing Productivity,” David Albouy and I present the first nationwide index of directly-measured land values and investigate their relationship with housing prices. Construction prices and geographic and regulatory constraints increase the cost of housing relative to land. On average, one-third of housing costs are due to land, and the elasticity of substitution between land and other inputs is one-half. Conditional on input prices, housing productivity is low in larger cities. The increase in housing costs associated with greater regulation appears to outweigh any benefits from improved quality-of-life.

In “Price and Time to Sale Dynamics in the Housing Market: the Role of Incomplete Information,” I propose a model of the house-selling process in which sellers possess incomplete information regarding the state of the market. This model generates a negative correlation between house prices and time on market, a result that can persist even when realtors possess complete information. I construct an empirical measure of homeowner misperceptions regarding the state of the housing market, and show that sales volumes are negatively correlated with an increase in homeowners’ perceptions of house prices relative to actual market conditions.