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Land Leverage: Decomposing Home Price Dynamics

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  • Raphael W. Bostic
  • Stanley D. Longhofer
  • Christian L. Redfearn
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    Abstract

    This article demonstrates the importance of separating the bundled good of housing into land and improvements, arguing that changes in a property's overall value will depend critically on how much of its total value is contained in the land, a proportion we call land leverage. The importance of this deconstruction is demonstrated by highlighting how land leverage helps to explain variation in house price appreciation in Wichita, Kansas. Noting that land leverage should be relevant for many real estate issues and policies, we highlight four specific areas where consideration of land leverage could significantly improve our understanding of real estate markets. Copyright 2007 American Real Estate and Urban Economics Association

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    Bibliographic Info

    Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

    Volume (Year): 35 (2007)
    Issue (Month): 2 (06)
    Pages: 183-208

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    Handle: RePEc:bla:reesec:v:35:y:2007:i:2:p:183-208

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    7. Edward L. Glaeser & Joseph Gyourko, . "The Impact of Zoning on Housing Affordability," Zell/Lurie Center Working Papers 395, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
    8. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    9. David E. Clark & William E. Herrin, 1997. "Historical Preservation Districts and Home Sale Prices: Evidence from the Sacramento Housing Market," The Review of Regional Studies, Southern Regional Science Association, vol. 27(1), pages 29-48, Summer.
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    Cited by:
    1. Coulson, N. Edward & Li, Herman, 2010. "The effect of risk on the effect of a land tax: A simulation," Regional Science and Urban Economics, Elsevier, vol. 40(6), pages 530-537, November.
    2. Clapp, John M. & Eichholtz, Piet & Lindenthal, Thies, 2013. "Real option value over a housing market cycle," Regional Science and Urban Economics, Elsevier, vol. 43(6), pages 862-874.
    3. Elias Oikarinen, 2009. "Dynamic linkages between housing and lot prices: Empirical evidence from Helsinki," Discussion Papers 53, Aboa Centre for Economics.
    4. Diewert, Erwin & Shimizu, Chihiro, 2013. "Residential Property Price Indexes for Tokyo," HIT-REFINED Working Paper Series 3, Institute of Economic Research, Hitotsubashi University.
    5. Du, Hongyan & Ma, Yongkai & An, Yunbi, 2011. "The impact of land policy on the relation between housing and land prices: Evidence from China," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(1), pages 19-27, February.
    6. Stephen D. Oliner & Joseph B. Nichols & Michael R. Mulhall, 2012. "Swings in commercial and residential land prices in the United States," Working Papers 35088, American Enterprise Institute.
    7. Diewert, Erwin & Shimizu, Chihiro, 2014. "Alternative Approaches to Commercial Property Price Indexes for Tokyo," Economics working papers erwin_diewert-2014-34, Vancouver School of Economics, revised 14 Jul 2014.
    8. Joseph B. Nichols & Stephen D. Oliner & Michael R. Mulhall, 2010. "Commercial and residential land prices across the United States," Finance and Economics Discussion Series 2010-16, Board of Governors of the Federal Reserve System (U.S.).
    9. Diewert, W. Erwin & Nishimura , Kiyohiko & Shimizu, Chihiro & Watanabe, Tsutomu, 2014. "Residential Property Price Indexes for Japan: An Outline of the Japanese Official RPPI," Economics working papers erwin_diewert-2014-17, Vancouver School of Economics, revised 27 Mar 2014.
    10. Bourassa, Steven C. & Hoesli, Martin & Scognamiglio, Donato & Zhang, Sumei, 2011. "Land leverage and house prices," Regional Science and Urban Economics, Elsevier, vol. 41(2), pages 134-144, March.
    11. Clapp, John M. & Bardos, Katsiaryna Salavei & Wong, S.K., 2012. "Empirical estimation of the option premium for residential redevelopment," Regional Science and Urban Economics, Elsevier, vol. 42(1-2), pages 240-256.

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