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Housing, Land Prices, and Growth

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  • Deaton, Angus
  • Laroque, Guy

Abstract

We consider the effects of land for housing on the growth process within an overlapping generations model. Our original interest was to enquire whether the introduction of land into a growth model might account for a "virtuous" circle in which saving-up for land (or housing) generates growth and higher land prices, generating further increases in saving, and so on. Such an account is sometimes proposed for high saving rates in East Asia, where mortgage markets are limited or absent. Our analysis does not support such a story. The user cost of land reduces the resources available for consumption of reproducible goods, so that the introduction of intrinsically valuable land into a growth model lowers the equilibrium stock of capital and raises the equilibrium interest rate. On the asset side, the presence of land causes life-cycle savings to be reallocated away from productive capital towards land. The social optimum in such a model is for land to be nationalized and provided at zero rent. Land markets, far from generating saving and growth, are inimical to capital formation. Copyright 2001 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal Journal of Economic Growth.

Volume (Year): 6 (2001)
Issue (Month): 2 (June)
Pages: 87-105

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Handle: RePEc:kap:jecgro:v:6:y:2001:i:2:p:87-105

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Web page: http://www.springerlink.com/link.asp?id=102931

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Cited by:
  1. Charles Ka Yui Leung & Nan-Kuang Chen, 2005. "Intrinsic Cycles of Land Price: A Simple Model," Discussion Papers 00005, Chinese University of Hong Kong, Department of Economics.
  2. Homburg, Stefan, 2014. "Overaccumulation, Public Debt, and the Importance of Land," Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Leibniz Universität Hannover dp-525, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  3. Gersbach, Hans & Siemers, Lars-H. R., 2010. "Land Reforms And Economic Development," Macroeconomic Dynamics, Cambridge University Press, vol. 14(04), pages 527-547, September.
  4. Claire Loupias & Bertrand Wigniolle, 2011. "Population, land and growth," Documents de travail du Centre d'Economie de la Sorbonne 11010, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  5. Claire Loupias & Bertrand Wigniolle, 2013. "Population, land, and growth," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00823255, HAL.

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