Arrested Development: Theory and Evidence of Supply-Side Speculation in the Housing Market
This paper studies the role of disagreement in amplifying housing cycles. Speculation is easier in the land market than in the housing market due to frictions that make renting less efficient than owner-occupancy. As a result, undeveloped land facilitates construction and intensifies the speculation...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Blackwell Publishing Ltd
2018
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| Online Access: | View Fulltext in Publisher |
| Summary: | This paper studies the role of disagreement in amplifying housing cycles. Speculation is easier in the land market than in the housing market due to frictions that make renting less efficient than owner-occupancy. As a result, undeveloped land facilitates construction and intensifies the speculation that causes booms and busts in house prices. This observation challenges the standard intuition that in cities where construction is easier, house price booms are smaller. It can also explain why the largest house price booms in the United States between 2000 and 2006 occurred in areas with elastic housing supply. © 2018 the American Finance Association |
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| ISBN: | 00221082 (ISSN) |
| DOI: | 10.1111/jofi.12719 |