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Inside a bubble and crash: Evidence from the valuation of amenities

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  • Ronan C. Lyons

    ()
    (Department of Economics, Trinity College Dublin)

Abstract

Housing markets and their cycles are central to understanding macroeconomic fl uctuations. As housing is an inherently spatial market, an understanding of the economics of location-specific amenities is needed. This paper examines this topic, using a rich dataset of 25 primary location-specific characteristics and over 1.2 million sales and rental listings in Ireland, from the peak of a real estate bubble in 2006 to 2012 when prices had fallen by more than half. It finds clear evidence that the price effects of amenities are greater than rent effects, something that may be explained by either tenant search thresholds or buyers' desire to "lock in" access to fixed-supply amenities. Buyer lock-in concerns would be most prevalent at the height of a bubble and thus would be associated with pro-cyclical amenity pricing. Instead there is signi cant evidence that the relative price of amenities is counter-cyclical. This suggests the Irish housing market bubble was characterized by "property ladder" effects, rather than "lock-in" concerns.

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Bibliographic Info

Paper provided by Trinity College Dublin, Department of Economics in its series Trinity Economics Papers with number tep0513.

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Length: 33 pages
Date of creation: Dec 2013
Date of revision:
Handle: RePEc:tcd:tcduee:tep0513

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Postal: Trinity College, Dublin 2
Phone: (+ 353 1) 6081325
Fax: 6772503
Web page: http://www.tcd.ie/Economics/
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Keywords: Housing markets; amenity valuation; search costs; market cycles;

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References

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  1. Gatzlaff, Dean H. & Haurin, Donald R., 1998. "Sample Selection and Biases in Local House Value Indices," Journal of Urban Economics, Elsevier, vol. 43(2), pages 199-222, March.
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  3. O'Rouke, K. & Polak, B., 1992. "Property Transactions in Ireland , 1708-1988: An Introduction," Papers 92-18, Columbia - Graduate School of Business.
  4. Mayor, Karen & Lyons, Seán & Duffy, David & Tol, Richard S. J., 2008. "A Hedonic Analysis of the Value of Rail Transport in the Greater Dublin Area," Papers WP264, Economic and Social Research Institute (ESRI).
  5. Ronan C. Lyons, 2013. "Price signals in illiquid markets:The case of residential property in Ireland, 2006-2012," Trinity Economics Papers tep0613, Trinity College Dublin, Department of Economics.
  6. Hilber, Christian A.L. & Mayer, Christopher, 2009. "Why do households without children support local public schools? Linking house price capitalization to school spending," Journal of Urban Economics, Elsevier, vol. 65(1), pages 74-90, January.
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  8. DiPasquale, Denise & Somerville, C. Tsuriel, 1995. "Do House Price Indices Based on Transacting Units Represent the Entire Stock? Evidence from the American Housing Survey," Journal of Housing Economics, Elsevier, vol. 4(3), pages 195-229, September.
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  15. Katherine A. Kiel & Jeffrey E. Zabel, 1999. "The Accuracy of Owner-Provided House Values: The 1978-1991 American Housing Survey," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 27(2), pages 263-298.
  16. Barton A. Smith & William P. Tesarek, 1991. "House Prices and Regional Real Estate Cycles: Market Adjustments in Houston," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(3), pages 396-416.
  17. Leo Grebler & David M. Blank & Louis Winnick, 1956. "Capital Formation in Residential Real Estate: Trends and Prospects," NBER Books, National Bureau of Economic Research, Inc, number greb56-1, May.
  18. Stephen Gibbons & Stephen Machin, 2008. "Valuing school quality, better transport, and lower crime: evidence from house prices," Oxford Review of Economic Policy, Oxford University Press, vol. 24(1), pages 99-119, spring.
  19. Mayor, Karen & Lyons, Seán & Duffy, David & Tol, Richard S. J., 2009. "A Hedonic Analysis of the Value of Parks and Green Spaces in the Dublin Area," Papers WP331, Economic and Social Research Institute (ESRI).
  20. Smith, V Kerry & Huang, Ju-Chin, 1995. "Can Markets Value Air Quality? A Meta-analysis of Hedonic Property Value Models," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 209-27, February.
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