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Arrested Development: Theory and Evidence of Supply‐Side Speculation in the Housing Market

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  • CHARLES G. NATHANSON
  • ERIC ZWICK

Abstract

This paper studies the role of disagreement in amplifying housing cycles. Speculation is easier in the land market than in the housing market due to frictions that make renting less efficient than owner‐occupancy. As a result, undeveloped land facilitates construction and intensifies the speculation that causes booms and busts in house prices. This observation challenges the standard intuition that in cities where construction is easier, house price booms are smaller. It can also explain why the largest house price booms in the United States between 2000 and 2006 occurred in areas with elastic housing supply.

Suggested Citation

  • Charles G. Nathanson & Eric Zwick, 2018. "Arrested Development: Theory and Evidence of Supply‐Side Speculation in the Housing Market," Journal of Finance, American Finance Association, vol. 73(6), pages 2587-2633, December.
    • Handle: RePEc:bla:jfinan:v:73:y:2018:i:6:p:2587-2633
    DOI: 10.1111/jofi.12719
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