Fundamental and Speculative Demands for Housing
55 Pages Posted: 15 Apr 2019
Date Written: March 2019
This paper separates the roles of demand for housing services and belief about future house prices in a house price cycle, by utilizing a feature of user-cost-of-housing that it is sensitive to demand for housing services only. Optimality conditions of producing housing services determine user-cost-of-housing and the elasticity of substitution between land and structures in producing housing services. I find that the impact of demand for housing services on house prices is amplified by a small elasticity of substitution, and demand explained four fifths of the U.S. house price boom in the 2000s.
Keywords: Price indexes, Demographic indicators, Flow of funds, Business cycles, Asset bubbles, Belief, Housing Cycles, Land Prices, Land Share, house service, house price, residential structure, marginal productivity, type of shock
JEL Classification: E10, E32, G12, G40, R30, R31, E01, D4, G21, C43, L
Suggested Citation: Suggested Citation