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A q Model of House Prices

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Author Info

  • Jakob B Madsen

Abstract

This paper develops a Tobin’s q model of house prices which shows that changes in interest rates, demography, and income are likely to have only temporary effects on house prices while house prices in the long run are determined by prices of developed land, value added taxes, stamp duties, and construction costs. Empirical estimates show that agricultural land prices are a proxy for urban land prices, which, together with construction costs are the key determinants of house prices in the long run.

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File URL: http://www.buseco.monash.edu.au/eco/research/papers/2011/0311modelmadsen.pdf
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Bibliographic Info

Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number 03-11.

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Length: 28 pages
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:mos:moswps:2011-03

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Postal: Department of Economics, Monash University, Victoria 3800, Australia
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Keywords: housing market; Tobin’s q; construction costs; land prices;

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References

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  1. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
  2. Hubbard, R Glenn & Kashyap, Anil K, 1992. "Internal Net Worth and the Investment Process: An Application to U.S. Agriculture," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 506-34, June.
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  7. Meen, Geoffrey P, 1990. "The Removal of Mortgage Market Constraints and the Implications for Econometric Modelling of UK House Prices," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(1), pages 1-23, February.
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  11. Kostas Tsatsaronis & Haibin Zhu, 2004. "What drives housing price dynamics: cross-country evidence," BIS Quarterly Review, Bank for International Settlements, March.
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  16. Capozza, Dennis R. & Helsley, Robert W., 1989. "The fundamentals of land prices and urban growth," Journal of Urban Economics, Elsevier, vol. 26(3), pages 295-306, November.
  17. Maurice J. Roche & Kieran McQuinn, 2000. "Speculation in agricultural land," Economics, Finance and Accounting Department Working Paper Series n1010700, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
  18. Ian W. Hardie & Tulika A. Narayan & Bruce L. Gardner, 2001. "The Joint Influence of Agricultural and Nonfarm Factors on Real Estate Values: An Application to the Mid-Atlantic Region," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(1), pages 120-132.
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  21. Kearl, J R, 1979. "Inflation, Mortgages, and Housing," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 1115-38, October.
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  23. Wheaton, William C., 1974. "A comparative static analysis of urban spatial structure," Journal of Economic Theory, Elsevier, vol. 9(2), pages 223-237, October.
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Citations

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Cited by:
  1. Madsen, Jakob B., 2012. "A behavioral model of house prices," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 21-38.
  2. Sarah Carrington & Jakob B. Madsen, 2011. "House Prices, Credit and Willingness to Lend," The Economic Record, The Economic Society of Australia, vol. 87(279), pages 537-557, December.
  3. Durmaz, Nazif, 2011. "Housing Prices and Fundamentals: The Role of a Supply Shifter," MPRA Paper 28556, University Library of Munich, Germany.
  4. Renée A. Fry & Vance L. Martin & Nicholas Voukelatos, 2010. "Overvaluation in Australian Housing and Equity Markets: Wealth Effects or Monetary Policy?," The Economic Record, The Economic Society of Australia, vol. 86(275), pages 465-485, December.
  5. Khiabani, Nasser, 2010. "How Important are Oil and Money Shocks in Explaining Housing Market Fluctuations in an Oil-exporting Country?: Evidence from Iran," MPRA Paper 34041, University Library of Munich, Germany, revised 01 Mar 2011.
  6. André K. Anundsen & Eilev S. Jansen, 2013. "Self-reinforcing effects between housing prices and credit: an extended version," Discussion Papers 756, Research Department of Statistics Norway.
  7. Madsen, Jakob B., 2009. "Taxes and the fundamental value of houses," Regional Science and Urban Economics, Elsevier, vol. 39(3), pages 365-376, May.

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