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Residential Buildings And The Cost Of Construction: New Evidence On The Efficiency Of The Housing Market

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Author Info
Stuart S. Rosenthal
Abstract

Present value studies of asset market efficiency are controversial because they compare asset prices to unobserved discounted streams of future rents. As an alternative, if housing markets are efficient, then the price of residential capital or buildings should satisfy the following two conditions: (i) deviations between new building prices and construction costs should disappear faster than construction lags and have no effect on construction, and (ii) temporary building price shocks should dissipate at a similar rate for different vintage buildings. Results from an errorcorrection model support both hypotheses for single-family housing in Vancouver, British Columbia. This implies that the implicit market for residential buildings is efficient and that any inefficiencies in the housing market must lie in the market for land itself. © 2000 by the President and Fellows of Harvard College and the Massachusetts Institute of Technolog

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File URL: http://www.catchword.com/cgi-bin/cgi?ini=bc&body=linker&reqidx=0034-6535(19990501)81:2L.288;1-
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Publisher Info
Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 81 (1999)
Issue (Month): 2 (May)
Pages: 288-302
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Handle: RePEc:tpr:restat:v:81:y:1999:i:2:p:288-302

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Web page: http://mitpress.mit.edu/journals/

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Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535

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  1. Erik Hjalmarsson & Randi Hjalmarsson, 2006. "Efficiency in housing markets: do home buyers know how to discount?," International Finance Discussion Papers 879, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  2. Rainer Schulz & Axel Werwatz, 2008. "House Prices and Replacement Cost: A Micro-Level Analysis," SFB 649 Discussion Papers SFB649DP2008-013, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
  3. Laura Berger-Thomson & Luci Ellis, 2004. "Housing Construction Cycles and Interest Rates," RBA Research Discussion Papers rdp2004-08, Reserve Bank of Australia. [Downloadable!]
  4. Elias Oikarinen, 2009. "Dynamic linkages between housing and lot prices: Empirical evidence from Helsinki," Discussion Papers 53, Aboa Centre for Economics. [Downloadable!]
  5. Hjalmarsson, Erik & Hjalmarsson, Randi, 2006. "Efficiency In Housing Markets: Do Home Buyers Know How To Discount?," Working Papers in Economics 232, Göteborg University, Department of Economics. [Downloadable!]
  6. Joseph Gyourko & Albert Saiz, 2003. "Urban decline and housing reinvestment: the role of construction costs and the supply side," Working Papers 03-9, Federal Reserve Bank of Philadelphia. [Downloadable!]
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