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Land leverage and house prices

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  • Bourassa, Steven C.
  • Hoesli, Martin
  • Scognamiglio, Donato
  • Zhang, Sumei

Abstract

A house is a bundle of land and improvements, with the weights of the two components varying both over time and across locations. We capture the land intensity or "leverage" of a property by measuring the ratio of land to total value. This is accomplished using transactions data for single-family homes in Switzerland over the period 1978 to 2008. We show how to use hedonic models to develop time series of land prices and land leverage. Then we estimate error correction models for both house prices and land leverage. We show the importance of interacting land leverage with fundamentals when assessing the determinants of house prices. House price changes are shown to be affected by changes in real construction costs, in real GDP per capita, and in the growth of the population aged 30 to 49, while land leverage changes are a function of changes in real construction costs and in real GDP per capita.

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Bibliographic Info

Article provided by Elsevier in its journal Regional Science and Urban Economics.

Volume (Year): 41 (2011)
Issue (Month): 2 (March)
Pages: 134-144

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Handle: RePEc:eee:regeco:v:41:y:2011:i:2:p:134-144

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Related research

Keywords: Land leverage House price dynamics Land prices Error correction models;

References

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  1. Steven C. BOURASSA & Martin HOESLI & Donato SCOGNAMIGLIO & Philippe SORMANI, 2008. "Constant-Quality House Price Indexes for Switzerland," Swiss Finance Institute Research Paper Series 08-10, Swiss Finance Institute.
  2. Steven C. BOURASSA & Donald R. HAURIN & Jessica L. HAURIN & Martin HOESLI & Jian SUN, 2005. "House Price Changes and Idiosyncratic Risk: The Impact of Property Characteristics," FAME Research Paper Series rp160, International Center for Financial Asset Management and Engineering.
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Citations

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Cited by:
  1. Kolbe, Jens & Schulz, Rainer & Wersing, Martin & Werwatz, Axel, 2013. "Location, location, location: Extracting location value from house prices," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79732, Verein für Socialpolitik / German Economic Association.
  2. Jens Kolbe & Rainer Schulz & Martin Wersing & Axel Werwatz, 2012. "Location, Location, Location: Extracting Location Value from House Prices," Discussion Papers of DIW Berlin 1216, DIW Berlin, German Institute for Economic Research.
  3. 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.
  4. 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.

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