Fundamental and Speculative Demands for Housing

55 Pages Posted: 15 Apr 2019

See all articles by Weicheng Lian

Weicheng Lian

International Monetary Fund (IMF)

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

Lian, Weicheng, Fundamental and Speculative Demands for Housing (March 2019). IMF Working Paper No. 19/63, Available at SSRN:

Weicheng Lian (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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